Mutual funds are the most popular investment avenues of India. It gained popularity due to involvement of big companies and banks. So apart from the stock market, you can also invest your money in mutual funds.
Mutual funds are good financial instruments in a trading account that will help you increase the value of your money over time.
What Are Mutual Funds?
Mutual funds in simplified terms are funds that are collected by companies from people looking to invest in the stock market or the securities market.
Function of Mutual Funds
Back in the initial days, mutual funds were not so popular as there was no proper awareness among people about making profits from them. However, since the last 10 years YoY comparison, mutual funds have shown tremendous grown in popularity and market acceptance owing to their higher rate of return. So if you are to invest ₹10,000 then your money will be pooled in with the rest of the investors’ money and once it is in the market, you will be given a share of the investment.
Most mutual funds maintain portfolio to invest your money in bonds, stocks and securities. This depends on which one is proposing a better investment opportunity. The final decision is made by the fund manager who will look at the best places to invest the investor’s money.
There are three main ways to make profit in mutual funds. The first way to make money is when the person receives dividends from the profits that the companies make. The second way to earn profit is by selling the securities from their portion that are doing really well and have shot up in value. The third way is when the fund has a good capital gain, mostly due to an increase in its overall value.
Important Factors of Mutual Funds
High Gain
When you invest in mutual funds, you can expect high returns. The main reason for good performance is the fund manager, who is an expert trader, with years of experience, he knows exactly where to invest your money. Many people that’s why prefer mutual funds to self-trading after burning fingers in stock market as they can easily make more money from their investments and gain different forms of capital gains.
Autopilot
When you put money in mutual funds, you can relax as your fund manager has to do all the trading. You actually do nothing. So even if you don’t observe the stock market then it is still fine as your money is safely invested and will not go away just because you are not observing it.
Diversification
Mutual funds are good financial vehicles to diversify risks while having some chances to maximise gains. Diversification is very important when it comes to investing in the stock market. With mutual funds, you get flexible options, you invest in bonds, securities, commodity, stocks, etc. If you are an individual investor then you need large sum of money to diversify your portfolio. With mutual funds, you can easily maintain diversified portfolio investments, sometimes with fraction of the investment.
Fees
When it comes to buying and selling mutual fund assets, the transaction cost drastically reduces. This makes this stock product more cost effective option for the traders who want to invest in the market. So as an investor, you usually end up paying far less for your stocks and it often give you better returns. You save money in brokerage fees like it happens in conventional stock. You just incur fees for the services offered by the fund manager. Start trading with the comfort of your home download stock trading app.
