What is mutual fund ?
It is the easiest way to enter in the stock market or share market. Here the professional fund manager makes investment with our money on our behalf in stock market. They would invest in stocks , fixed deposit , gold , corporate bonds , etc. All these things are decided on the type of mutual fund or basically , we get benefit of their expertise without any hardwork at all. That it why mutual fund is a brilliant way for you to enter the investing world.
A mutual fund is a company that pools money from many investors and invest the money in securities such as stocks , bonds , and short term debt. The combined holdings of mutual fund are known as its portfolio. Investor buy shares in mutual funds. Each shares represents an investor’s part ownership in the fund and the income it generate.
Types of mutual fund in India –
- Equity mutual fund – These fund invest your money in equity or stocks. That also has different categories. It could be Large cap ( means the big companies ) , so the top 100 companies are called the large cap or large capital companies. Then there is mid cap which would be 101st to 250th size of the company. Then there is small cap which all the companies below 250.
- Debt mutual fund – Its like fixed deposit. You get an assured income and because the risk is less in this, return is also less.
- Hybrid mutual fund – In this fund, it will have some part of equity and some of debt. It naturally is a balanced fund. If you don’t want to take risks but at the same time you don’t want to play too safe like in debt mutual fund, you would have a hybrid mutual fund for your investing. This also has tax-saving mutual funds. People invest in tax saving mutual fund or ELSS ( Equity Linked Saving Scheme ). Its benefit is that upto 1.5 lakh of your investment in a year is a tax-free. Mostly all these ELSSs have a lock in period, which is minimum of 3 years.
How to select mutual fund ?
There are some things you need to bear in mind before selecting the mutual fund and these are discuss below –
- First of all, knowing the company of that mutual fund.
- Knowing its historical performance.
- Knowing the NAV ( Net Asset Value ) of the company.
- Then there is something called expense ratio. Expense ratio means how much amount from whatever money you give, will go into managing this account as expenses. The lesser the expense ratio, the better is the mutual fund.
- Then there is something called exit load, which means when you sell the mutual fund, that time how much percentage will you have to pay as a fee. So lesser the exit load, the better is mutual fund.
How to buy mutual fund ?
The first one is parents way of buying i.e. buying through an agents. There is a broker or middlemen or an agent who also needs to be paid.
But on the other hand, today’s generation has option of doing direct fund buying. It means that you go online, you buy the fund directly through some apps ( e.g. Groww, Zerodha, Indmoney etc.). In that case you will only have to pay the expense ratio of the fund. You don’t have to pay for any middlemen, any broker because most of these apps are commission free, they do not charge anything from us to buy or sell a mutual fund.
Please start your mutual fund journey, if you are in your 20s or 30s. If you want to invest in stocks and you don’t know anything about it or don’t have enough time to learn it then it is the great way to you to start this mutual fund journey.