“Mutual funds are subjected to market risks. Read all scheme-related documents carefully.”
All of us have heard this statement, but still, a lot of people don’t know what it means.
There are a lot of investment options available as of now. Thanks to the digital revolution, we can now invest our hard-earned savings from the comfort of our home. We can either contact a broker, or we can just use a mobile application to start investing.
What are Mutual Funds?
As per www.investor.gov, “A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt.”
www.investopedia.com says, “A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.”
There are a lot of definitions for the very same concept in this world. But let’s keep it simple:
“Mutual Funds are collective funds which are invested on our behalf by professional investors, in exchange for a fee.”
There are a number of professional investors, who are willing to make investments and manage them professionally. Obviously, this involves the use of technology. Technology is everywhere around us nowadays, and these professionals use their skills and integrate technology to carefully analyze the investments made.
Their very next step is to allocate funds into various investment opportunities and analyze the return of investments.
There are a number of investment opportunities available, and shares are one of those. Shares in a company tend to be more dynamic as the value of a share can rise or fall very quickly. Whenever a company makes a bad decision, we observe a rapid fall in the cost of that share, and vice-versa.
A share is a part of the ownership of a public company. The prices of shares fluctuate daily and are very dynamic. On the other hand, mutual funds do not fluctuate by huge differences.
Managing both of these funds requires knowledge and experience. Investment decisions are backed by proper study, analysis, and experience in the market. In the case of mutual funds, there are Asset Management Companies (AMCs) that take the responsibility to manage the investments made by people.
There are a lot of AMCs including:
- ICICI Prudential Mutual Fund
- HDFC Mutual Fund
- Aditya Birla Sun Life Mutual Fund
- Reliance Mutual Fund
- SBI Mutual Fund
- L&T Mutual Fund
- Kotak Mahindra Mutual Fund
- Franklin Templeton Mutual Fund
Investing in mutual funds doesn’t require a Demat account. One can just install and configure mobile applications and start investing right away.
We all know that the value of U.S.D. is increasing daily, and it has grown a lot through the past years. If someone saves a part of what they earn in their bank accounts in the form of Fixed Deposits (F.D.), the maximum interest rate they can get is 6% p.a. But if you invest a part of this amount into mutual funds, two things will happen:
- Increased risk-taking capability
- It initiates the flow of money into the economy
It is observed that a very less percentage of the Indian population invests in the financial market, due to earlier trends, and distrust amongst the population.
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What if everyone starts investing?
“So, the average ETMONEY investor keeps 64% of his/her mutual fund portfolio in equity funds, 6% in hybrid funds, 15% in liquid funds, and the balance 15% in debt funds.”As mentioned in ETMONEY.COM
Not a lot of people make investments in the Indian financial market. But what will happen when everyone starts investing a part of their earnings? Let’s take a look:
- Investments will make the AMCs invest money into potential industries
- Companies will receive funds to continue/revive their operations
- Companies will also have more liquid assets which means, more functionality
- Employers will be able to remunerate their employees properly
- Satisfied employees will ultimately result in increased productivity
- Increased productivity will lead to higher profitability
- Higher profitability will make the company financially strong, i.e. higher N.A.V.
- Higher N.A.V. will result in increased profits to the investors
It is not right to invest all your money into the financial market. A famous quote explains this:
“Do not put all your eggs in one basket.”Warren Buffet
One should know how much they should invest. It is clear that according to this quote, we can derive the following:
- We should not invest all of our earnings;
- We should not invest in a single fund/source.
If you are an aggressive investor, you can invest somewhere around 40-50% of your monthly earnings. Beginners can start investing with small amounts. You can start investing Rs. 100 per month if you’re not sure about this but still want to enter the financial market. Also, don’t forget the very first statement in this article.
We hope this article has provided some valuable information to you. Don’t forget to share your thoughts in the comment section below. Happy reading, and also, happy investing!