The Basics of Mutual Funds

If you are a newbie to the financial and investing world and want to know what is mutual fund as a concept and how mutual funds work, this article can help you. We offer you a look into mutual funds basics and shed light on how to buy mutual funds. You will also learn about the main benefits of placing your money in this investment avenue.What is a Mutual Fund?Mutual funds are not intimidating or complicated. In simple terms, a mutual fund is created by pooling money from a large number of investors, which is then handled by an expert fund manager. The manager invests the funds in bonds, equities, money market instruments, and other securities. Every investor is given ‘units’ that represent a part of the fund holdings.

Profits generated from the overall investment is proportionately shared among the investors after subtracting expenses. This is done by computing a plan’s Net Asset Value (NAV). Mutual funds have become a viable investment option for lay investors as they allow you to place your money in a professionally managed, diversified securities basket at an affordable cost.

Benefits of Investing in Mutual FundsNow that you have learnt about mutual funds basics, let’s look at the chief benefits of investing in these schemes:

TransparencyThe plan gives you regular information on how your investment is performing and its latest value, as well as the investments they make with the collective funds.

Low CostYou can invest in a diversified suite for just Rs. 5,000 and, sometimes, even less. If you don’t want to be saddled with sales charges, you can opt for a no-load fund.

Expert SupportYou can contact the fund’s customer support team, who will advise you on how to buy mutual funds and how to sell your fund units. They’ll also offer fund information and answer queries about your account status. Top funds provide comprehensive support on convenient channels to put all your doubts to rest about how mutual funds work.

Flexibility and ConvenienceYou invest in just one security but reap the advantages of a diverse portfolio and an array of services. Mutual fund managers will help you to collect your dividends and interest payments, and exercise your investor rights. To provide you with the convenience and needed assistance, leading funds often employ a registrar and custodian.

Professional ExpertiseMutual funds use the services of high-level, full-time investment professionals as the schemes have deep pockets from managing large money pools. The managers utilize real-time access to vital market information to execute sizeable yet cost-effective trades for the benefit of investors.

DiversificationTo elaborate on how mutual funds work, they minimise risk by investing in a wide array of securities. This reduces the impact of a potential decline in a particular security’s value. Thus, mutual fund buyers can enjoy the benefits of diversification methods typically used by wealthy investors.

ConclusionWe hope this article has informed you adequately about what is a mutual fund and the many benefits it offers to lay investors. Select a suitable fund based on your risk appetite and grow your money securely or quickly. The choice is left to you.

Here's a little bit about myself. I've done a Masters in Economics and teach the subject to high school students. I am 32 years old and married to an investment advisor. A Dhoni fan who loves to play football! I am a sports enthusiast and a firm beli