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Posted: Mar 19, 2023
What is a mutual fund?
In a mutual fund, money is gathered and traded on behalf of other investors by authorized fund institutions like banks and Asset Management Companies (AMC). Only equity mutual funds are subject to SEBI regulation, and mutual funds aim to maximize returns while reducing risk.
When investments in mutual funds are spread over a variety of asset classes, the risk of market volatility is reduced because losses in one asset class may be compensated by gains in another. In fact, fund managers seek to produce returns that exceed the threshold level by applying their knowledge and experience. The threshold level may be the nation's average index return. Get a better understanding by doing an analysis between SIP Vs Mutual Fund and finding which is better.
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Investments in mutual funds are frequently made in lump sums, and the fund management builds a portfolio by making investments across several asset classes. Depending on their investment size, mutual funds are classified as small-cap, mid-cap, and large-cap funds, index funds, theme-based funds, and ETFs based on their investment goals.Benefits and Risks of Mutual Funds
Investing in mutual funds offers professional management as well as diversification. They also offer three ways to earn money:
A fund's revenue could come from bond interest or equity dividends. After deducting expenses, the fund returns nearly all of its earnings to shareholders.
Capital Gains Distributions:
A fund's securities could become more expensive. When a fund sells a security whose price has risen, it makes a capital gain. At the end of the year, the fund distributes these capital gains to investors, less any capital losses.
The market value of a fund's portfolio grows after expenditures are deducted, enhancing the worth of both the fund and its shares. Your investment is more valuable, as evidenced by the increasing NAV.
All investments involve some level of risk. Investing in mutual funds carries the risk of losing some or all of your money since the value of the securities held by the fund can fall. If market circumstances change, dividend or interest payments may also alter.
Because past performance cannot indicate future returns, a fund's past performance is not as significant as you would believe. But past performance can show you how steady or erratic a fund has been over time. The risk of an investment rises as fund volatility rises.
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