Fundamentals Of Mutual Fund
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Mutual funds are one of the buzzing investment options available among youngster nowadays. Mutual funds investments are growing at a very impressive rate. We are going to dig deeper into multiple aspects of mutual funds. We will compare it with multiple investment option later and try to help into creating better or appropriate mutual fund portfolio.
Why invest in Mutual Fund?
You have reached here, so you have already found the solution to questions like should I invest or is it worth investing?
Primary goal of any investment is to grow wealth and mutual fund is one such option. Objective of growing wealth can be further refined into specific goal like funding a life goal like buying a car, watching live FIFA or Cricket world cup, world tour, retirement fund etc. Active investor uses mutual fund as mode of diversification, so that a portion of their money are managed by someone else. For few it is a safer mode to invest in stock market.
What is Mutual Fund?
Mutual fund is a theme or strategy based basket of various stock, debt and other investment option tradable on stock exchange. Mutual funds are managed by fund managers, who will collect money from various investors and invest collected money on their behalf in stock market. Investor will be selecting a theme for investment on the basis of risk appetite, risk/reward ratio and investment horizon.
Who are Fund Managers?
Fund manager are professional who are responsible for managing the theme or strategy and manages the fund trading activities. They are highly qualified and experienced individual with knowledge of investment skill. They usually charges on the basis amount managed by fund. Each AMC (Asset Management Company) have many Fund managers on the basis of investment strategy.
Where does Mutual Fund Invests your money?
Mutual fund invests the money into various types of instruments:
- Equity or stock: Mutual fund invests into various stocks in the basis of investment strategy. These are high risk and high return investment.
- Bond: Mutual fund invest in government issued securities or corporate bond. They have more or less stable return. They have low risk and low return investment. They are good alternative of Fixed Deposit (FD) and Recurring Deposit (RD).
- Money Market Instrument: These are similar instrument to bond. These instruments are for shorter time horizon for overnight to few months. There have similar or bit less return to normal bond investment but provide with high liquidity to fund manager.
- Other investment: Mutual fund in other investment scheme as well. Now, mutual fund houses have got an approval to invest in REIT (Real Estate Investment Trust) and InvIT (Investment Trust).