Mutual funds are investment vehicles that pool money from multiple investors to create a diversified portfolio. These funds are managed by professional fund managers.
Investors buy units or shares in the mutual fund, which represent their ownership in the underlying assets (stocks, bonds, etc.)
Note that mutual funds are not a asset class on their own, but a portfolio of other asset classes, the risk associated with a mutual fund is the risk of the underlying asset class.
Types of Mutual Funds
- Equity Funds: Invest primarily in stocks. High potential for growth but also higher risk.
- Debt Funds: Focus on fixed-income securities like bonds. Lower risk but moderate returns.
- Hybrid Funds: Blend of equity and debt. Balances risk and return.
- Money Market Funds: Invest in short-term debt instruments. Very low risk.
- Index Funds: Mimic a specific market index (e.g., Nifty 50). Low fees
Advantages of Mutual Funds :
- Diversification: Mutual funds invest in a broad mix of assets, reducing risk. An individual investor would have to invest substantial amounts to achieve the diversification equivalent to that of mutual funds. Mutual Funds have a low barrier to entry with SIPs starting as low as Rs.500.
- Professional Management: Fund managers make informed decisions based on research.
- Liquidity: Investors can buy or sell units easily.
- Tax Efficiency: Some funds such as ELSS funds offer tax benefits.
- Flexibility: Mutual funds can be bought in lumpsum or as monthly payments in the form of SIPs.
Before Getting started:
Ensure you are KYC complaint through a SEBI recognized KYC Registry Agencies (KRAs)
Mutual fund investments are subject to market risk. Please read all scheme related documents before investing.
