Mutual Funds: Benefits, Types, and Investment Strategies Explained
Mutual funds are a type of investment vehicle that pool funds from multiple investors and invest in various assets such as stocks, bonds, government securities, and gold. These funds are managed by professional fund managers who analyze and manage the investments.
The investments made by mutual funds are based on the fund's investment objective, which is determined by the fund manager. The Net Asset Value (NAV) of the mutual fund represents its market value and is calculated by dividing the total value of the investment portfolio by the number of units. The NAV changes daily based on the performance of the underlying assets. Investors can buy or redeem mutual fund units at the NAV.
Mutual funds offer advantages such as diversification, professional management, transparency, liquidity, tax savings, and choice. Some of the disadvantages include exit load fees, high expenses, over-diversification, and market risk. Mutual funds can be invested in through lump sum investments or systematic investment plans (SIPs).
There are various types of mutual funds, such as equity funds, debt funds, and hybrid funds, each with its own investment strategy. Investing in mutual funds can be done through a mutual fund company's website, a mutual fund distributor, or through an investment platform like ET Money.
Mutual funds are regulated by the Securities and Exchange Board of India (SEBI). Investors can make money from mutual funds through income earned from dividends and capital appreciation. It is important to understand the risk capacity and financial goals before investing in mutual funds.
The documents required for investing in mutual funds include proof of identity and proof of address. Mutual funds provide features and benefits such as diversification, professional management, transparency, liquidity, tax savings, and lower costs. However, they also have some disadvantages, including exit load fees and market risk.
Mutual funds function by pooling funds from investors, investing in securities, and distributing returns. The objectives of mutual funds can vary, but they generally aim to provide diversification, capital protection, capital growth, and tax savings. Some of the terms used in mutual funds include AMC or Fund Houses, NAV, SIP, NFO, AUM, CAGR, Exit Load, and XIRR.