Can Mutual Fund really lead to mutual benefits?

Wikipedia defines Mutual Fund as:

“A Mutual Fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.”

While the classical definition is comprehensive enough, the question that springs to our mind is, what is the hoopla surrounding mutual fund all about? In simple words, we can say that mutual fund gathers money from investors, which is then collectively invested on their behalf. A small fee is charged to manage the money. However, one cannot consider it as a substitute investment option for bonds and stocks, since the pooled funds are invested in bonds, stock and other sort of securities.

Mutual fund help you to fulfill your financial goals. No matter whether you are planning to own a house or car or your child’s education or marriage, mutual fund can provide answers to your financial woes. Further, if you don’t have much knowledge about them, you can take help of experts. Or if you are confident about your knowledge, then you can invest directly by visiting the relevant websites or visit its authorized branches with appropriate documents.

Of course, mutual fund come with their set of pros and cons:

Advantages

  • They provide economies of scale
  • Higher level of diversification
  • More liquidity
  • Professional investors manage it

Disadvantage

  • Investors have to pay different fees and expenses

Also, you have the option to choose mutual fund according to your requirements. The types of mutual fund are listed below:

  1. Fixed income funds 
  • It pays a fixed rate of return as government bonds
  • These bonds are held till its maturity period
  • The main aim of these funds is to offer steady cash flow to investors
  • High-yield corporate bond funds are risky than those funds that hold investment grade and government bonds
  1. Money market funds
  • It is considered as an open-ended mutual fund
  • These are invested in short-term fixed income securities like govt. bonds, bankers’ acceptances, etc.
  • Generally considered as safer investment, but has lower potential return as compared to other types
  1. Balanced funds
  • Balanced funds are invested in fixed income securities and mix of equities
  • They aim to achieve higher returns besides the risk of losing money
  • A formula is followed to divide money among various types of investments
  • They have more risk than fixed income funds and less risk than pure equity funds
  1. Equity funds
  • They are invested in stocks
  • Equity funds aim to grow fast as compared to fixed income funds or money market
  • You are free to choose from the available types of equity funds like income funds, value stocks, small-cap stocks, mid-cap stocks, large-cap stocks or group of these
  1. Specialty funds
  • As the name suggests these funds focus to invest within a certain sector or industry of the economy like socially responsible investing, commodities, real estate, etc.
  • These funds may invest in companies that assist human rights, diversity, etc. avoiding companies which involve tobacco, alcohol, weapons, etc.
  1. Fund-of-funds

Fund-of-funds are also referred as a multi-manager investment

  • Fund-of-funds invest in different funds
  • Before investing in these funds, make sure you are aware of its risk levels and goals. For example, if you have two funds which are of the same type you shouldn’t suppose it to have same risk levels and goals as both will show different results
  • Also, it is advised to have a word with your financial advisor and then decide which one is best for you
  1. Index funds

An index fund is also known as index tracker or exchange-traded fund. It has to follow certain pre-set rules.

  • Index funds track performance of certain index
  • A mutual fund is directly proportional to index. If it will go up the index will also go up
  • These funds have lower cost as compared to those mutual fund which are managed actively and this so because the manager don’t have to do much research or have to make more investment decisions

Do you feel you need academic guidance to gain necessary expertise? Well, you can choose a certificate program on mutual fund to get started. BSE Institute Limited provides a comprehensive certificate program on mutual fund. It aims to:

  • Offer learning opportunity to manage and organise mutual fund
  • If you are a mutual fund distributor, you will get insights and knowledge required to be an informed investment advisor and better agent
  • Help mutual fund employees to understand the complexities and functionality (both internally and externally)
  • If you are an investor you will get knowledge on rewards and risks of investing in mutual fund
  • It helps to equip financial intermediaries like brokers, agents, etc. to pass the AMFI Certification Test

Interested? Visit bit.ly/2nlDfJs to learn more. May this be the beginning of a ‘mutually beneficial’ journey for you!

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