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Questions (FAQs) on
What is a Mutual Fund ?
As the name suggests, Mutual Fund is a corpus (which means large money of fund) accumulated or pooled together mutually by many people. The money pooled in such a way is professionally managed by an Asset Management Company (AMC) which further invests this amount in various instruments such as stocks, bonds, commodities, money market etc. For a retail investor, a Mutual Fund is an indirect way of investing money into stocks & bonds. Indirect way essentially means that the investor doesn’t need to himself invest rather the investment activities are managed by the AMC.
Why should I invest in Mutual Funds ?
Mutual Funds over the years have proven to be one of the best performing investment instruments. It has outperformed almost all kind of investment options such as indices, real estate, gold, bank deposits, fixed deposits. Mutual funds have an inherent character of being neither too risky as equity nor too conservative as bank deposits. Despite being moderate in risk, the rewards have been large and hence the risk to reward ratio becomes very small.
Mutual funds can be started with as low as Rs 500 or Rs 1000 and there are monthly investment options (SIP – Systematic Investment Plans) which allow even the beginners to get in.
What are the different types of Mutual Funds ?
On the basis of investment objectives, Mutual Funds schemes are classified as – Equity Fund, Debt Fund, Balanced fund, Liquid Funds, Gilt Funds, Index Funds, Sectoral Funds & Fund of Funds. The money that you invest in any specific type of mutual fund is further primarily invested into that space which is the fund objective or type. So for example, when you invest in an Equity Fund, 80% of your investment goes into stocks & stock related instruments. When you buy an Index Fund, your Fund Manager looks to invest the corpus of the fund into various indices such as Nifty, Sensenx, Bank Nifty, CNX IT, BSE 100, BSE 200 etc.
On the basis of investment period, all funds can be grouped into either of the 2 – Open ended funds & Closed ended funds. An open ended fund can be purchased or redeemed at any time where as a close ended fund has pre-defined entry limit or exit limit.
How can I pick the best performing Mutual Fund Schemes ?
There are 40+ Mutual Fund Companies in India and each companies have hundreds of schemes & plans of their own. Consequently there are more than 10000+ mutual fund schemes available for you to invest. Each Mutual fund has to share all the particular scheme investment report and previous performance stats with the investor. There are quite a few parameters that need to be deeply examined such as – Fund Manager & his previous background, which companies the fund is investing in, investment rotation pattern, past 1 month to 10 years performance, comparison with other funds etc.
How can a Mutual Fund Advisor help me ?
As explained above, investing in Mutual Funds is easy but picking the right fund to invest is complex. There are truckloads of funds and you need to do your own data analysis before investing. Not that all mutual funds have grown, there are funds which have given negative returns too. An expert Mutual fund advisor takes away the pains of funds analysis. Not only that your Mutual Fund advisor even lets you know when to exit from a certain scheme or to switch between multiple schemes and doing this rightly makes your returns better.