Mutual Funds Guide For Beginners:-
How can we define mutual funds? or What is mutual fund?
Mutual Fund is most popular and efficient investment process with pool of funds collected form many investors. The mutual funds generally invest the funds in equities, bonds, debentures or any multiple capital holding. Each mutual fund scheme is managed by Fund Manager with a team of professionals.
Mutual Fund is a trusted investment scheme makes people attracted with large number of investors and then reinvest the funds in earning making profits and distribute the dividend to the investors as per their capital investment.
Mutual Fund Scheme are suitable for small investors and big investors; if you are small investor then your investment cannot be spread into equity shares of good companies due to high price shares. Mutual Fund can effectively spread your investments across various capital investments in markets the helps small investors to keep their investment secure from market fluctuations.
In Mutual Fund Investment you can invest minimum amount of money, whatever amount you invested will be joined to huge cash investments by other investors. All the investors receive the profits from the investment equally based upon their capital investments.
What is Fund Portfolio?
A Compilation of assets working in a specific plan to achieve investment objective based in market factors, risk management, asset preference and liquidity needs. Portfolio is made with grouping of assets that are potential to achieve good profits, by minimizing risk and volatility with proper diversification and balance.
In mutual funds Scheme, you funds will be expanded among different securities to minimize risk. Mutual funds spread your money among numerous securities, with keep your money secured in market fluctuations.
Advantages of mutual funds:
- Mutual Fund is most popular investment method the have serval advantages:
- Main advantage of mutual fund is lower risk. Diversification of asserts in mutual fund reduces the loses from market fluctuations to some extant
- Mutual Fund give tax benefits; investments in mutual funds give us tax deductions. Dividends reinvested are also prevailing.
- Mutual Fund can be sold by investor on any business day, get its current market value in few days.
- The Main advantage of mutual fund scheme is advanced portfolio management. A best financial manager takes care of your investment by taking right step in every purchase or selling of stocks and bond.
- Dividend reinvestment is main feature of mutual fund. Dividends and interest income is used to purchase extra shares in mutual fund, that helps your investment grow.
- Security of our funds will be high with low risk factor. In mutual fund scheme our funds will invested on many securities called diversification. This process helps us to keeps our fund stable in uneven market levels.
Disadvantages of Mutual Funds:
- While investing on mutual fund pay attention on the expenses ratio, sales charges, Investing on mutual funds with high expense ratio is not that recommended.
- Mutual Fund schemes are not insured against loses. Risks and loses are common even mutual fund follow diversification.
- Diversification is not only advantage even its disadvantage in mutual fund, Mutual funds are neither exceptionally well nor exceptionally poor.
- Too many investors: In mutual fund it’s tough to find good investments. When you focus on investing on small companies, there are strong rules about how much. Each company a fund may own, Mutual fund has to select multiple companies to invest in. Mutual Funds have to lower its standards to pool the companies to invest in.
- Too many choices and inefficiency of cash reserve are also the main disadvantages of mutual fund.
Types of Mutual Funds:
Mutual Funds are differentiated into various categories:
Mutual Fund Schemes based on Type of investments: Every Mutual Fund scheme has its own prospectus based on that investments are collected. There are many schemes in mutual funds:
- Equity Funds
- Debt Funds
- Diversified Funds
- Money Market Funds
- Sector specific Funds
- Index Funds
- GILT Funds.
Mutual Funds based on Time span:
There are two type mutual fund Schemes based upon Time span.
- Open ended Schemes: there is no specific date when the mutual fund scheme will end.
- Close ended schemes: There will be particular date when this Mutual Funds Scheme will close.
Another set of Mutual Fund Schemes based on Taxation Incentives:
Tax Saving Funds: These funds will have Tax saving benefits, and application for taxation.
Non tax saving: These funds are not applicable for taxation.
Mutual Funds Scheme Based on payment periods:
Dividend paying scheme: In Some Mutual Fund Schemes divided will be distributes among investors periodically.
Reinvestment Schemes: In some Mutual Fund schemes divided or interest will be added to capital investments for reinvestment process.
Above are different types of mutual fund schemes with different combination of listed categories. So before you start investing in MF please make study of the scheme in which you are investing.