A mutual fund is an investment vehicle that pools investors money and invests them in securities like bonds, stocks, short-term money market instruments and commodities. The mutual fund is managed by professional fund managers and they charge a fee for it.
The mutual fund is the best investment for investors who do not have much knowledge and time to invest in the stock market. Investing in mutual funds, helps investors meet financial goals and grow their money over the long-term.
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Based on the types of securities where the funds are invested, mutual funds can be classified as follows:
1. Equity Mutual Funds
Equity Mutual Funds invest a major part of the corpus in stocks. The main objective of these funds is long-term capital growth. Equity funds invest at least 65% of their corpus, in equity and equity-related securities. Equity mutual funds are high-risk as they are linked to the stock market and are suitable for investors who are ready to take risks.
2. Debt mutual funds
3. Balanced Funds
Balanced Funds invest both in equity and fixed income instruments. These funds provide both stable income and capital appreciation to investors. Balanced funds are suitable for the investors who are ready to take moderate risk for decent returns.
4. Index Funds
Index funds are a type of mutual fund, which replicate the performance of a particular index like CNX Nifty and S&P BSE Sensex. The value goes up or down in line with the movement of the indices they track.
Mutual funds collect money from you and other investors and invest in various securities. Funds are managed by professional fund managers, who are well versed in the stock market. These fund managers try to achieve growth by making crucial investment decisions at the right time. Mutual fund units will be given to investors based on the proportion of their investments. An Asset management company will manage the investments in the mutual funds.
Modes of Investing in mutual funds
Investment in mutual funds can be done in two ways. Lump sum mode or through the systematic investment plan (SIP) mode. In the lump sum mode, you will have to invest your money in one go. In SIP mode, you can invest on a weekly, monthly or quarterly basis. SIP is the best way to invest in mutual funds, as it allows you to invest in a disciplined manner.
How to invest in Mutual Funds?
In order to invest in mutual funds, you need to complete the KYC (Know Your Customer) procedure, by filling in the registration form and submitting all the identity and address proofs, along with the other requisite documents. You should have your PAN card and bank account, with proper MICR (Magnetic Ink Character Recognition) code and IFSC. Be Wise, Get Rich.
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