A mutual fund is an investment scheme. SEBI (Securities and Exchange Board of India) regulates India’s mutual fund operations. Experienced professionals manage mutual fund companies. They work by collecting money from several investors, such as you. Then, the fund managers use this money to buy different securities. These include stocks, gold, government bonds, or a combination of these.
The goal of the fund managers is to generate profits for the investors. The best mutual funds use their money in such a way that the possibility of good returns is high. The income generated by a mutual fund is distributed among all the investors.
Why Should I Invest in Mutual Funds?
Maybe you think, “saving in a bank account will also make me money.” Unfortunately, savings account returns are low. They are even lower than the rate of inflation. So you’ll be losing money in the long run by relying on your bank account.
Mutual fund investing has now become a popular choice among people. These funds offer many features to the investor. Mutual funds are a fairly safe option to invest your money. They usually give good returns over a long period.
With mutual funds, your money is under professional management. The fund managers do the research and select the companies to invest the money in. They track the progress over time. So you do not need to put in any time or effort.
Mutual funds are very affordable. You can start investing in some of the best mutual funds with INR 1000. Funds invest in many companies and industries. So your investment is diversified and less susceptible to market risk.
Another reason to invest in mutual funds is liquidity. You can sell your mutual funds whenever you want to. The fund’s current Net Asset Value (NAV) will be credited to your account.
Types of mutual funds in India
Mutual funds are divided into different categories. This is based on the guidelines given by SEBI. According to their asset class, mutual funds can be divided into three types.
Equity mutual funds take your money and invest it in the stock market. These mutual funds are considered to be high-risk investments. These investments are directly linked to stock market volatility.
Large-cap funds invest most of their money in the top 100 companies in India.
Mid-cap funds invest most of their money in Indian companies that rank from 101 to 250.
Small-cap funds invest most of their money in small companies that are ranked beyond 250.
Flexi-cap or multi-cap mutual funds are flexible with their investments. They invest in both small and large companies. The fund managers focus on the growth potential of different companies.
Index funds are an excellent investment option for beginners. These funds match the performance of Sensex and Nifty. Sensex and Nifty 50 are the two indices of the National Stock Exchange in India.
Fixed income or debt funds
These mutual funds invest your money in government bonds, corporate bonds, and debentures. Fixed-income funds help generate regular returns for their investors. So, you can consider investing in debt funds if you need to make some regular income.
Make sure to know about the risk profile of a debt fund before investing your money.
Hybrid or balanced funds
Hybrid funds invest your money in different places. They invest in stocks, corporate bonds, and government bonds. They can also include other financial instruments. Hybrid funds try to reduce the investment risk for their investors. There are two types of hybrid funds.
- Equity-oriented hybrid funds invest most of their money in equities. The remaining amount is invested in debt instruments.
Debt-oriented hybrid funds invest most of their money in debt instruments. The remaining amount is invested in equities.
How to Invest in Mutual Funds
You can open your account in mutual funds using both online and offline methods.
Maybe you’re more comfortable with the offline method. To do this, complete your application form for the fund. Prepare a cheque or bank draft. Submit them at the branch office or at the designated service centre of that mutual fund.
An easier method is to invest in mutual funds online. You can log in to the website of the mutual fund you want to invest in. Follow the procedure given on the website. Make the payment, and now you are an investor.
There are two ways to invest money in mutual funds – Lump sum and SIP.
A lump sum is a one-time payment method for mutual funds. The investor purchases the required number of units of a particular mutual fund. Additional units are not purchased regularly.
A Systematic Investment Plan (SIP) is a repeated payment method for mutual funds. You can invest a fixed amount of money in a particular scheme. This investment is repeated at regular intervals. This disciplined investment option works great for salaried employees.
A Concluding Note
Investing in mutual funds can seem tricky for beginners. But don’t worry. There are several free online resources available for you. So, learn the basics and lay your foundation. Then you can continue to upskill yourself and grow your finances.
There are many types of mutual funds in the Indian market. Understand and compare their risk profile and their return on investment. Make an informed decision based on your requirements. You can also consult a financial advisor initially and find the best mutual funds to invest in based on your risk profile.
If you have any doubts or need help with your finances, you can always consult the experts at Piramal Finance. Visit the Piramal Finance website to learn more about their products and services.
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