What is a Mutual fund? How to make money from mutual funds

What is a Mutual fund? How to make money from mutual funds

Mutual Funds are diversified investment program funded by investors like us and are professionally managed. The scenario is the same as an agent who pools money from various investors to build a large corpus of the fund. Using this corpus of funds the agent using his knowledge and expertise invests in stocks, debts and other asset classes to earn good returns. The agent, in turn, charges some fees and passes on the high returns to the investors.

The agent here are the fund managers of the fund houses.

An Asset Management Company (AMC) or the mutual fund houses are the people or organizations that manage many mutual fund schemes under one roof. AMC would appoint a fund manager for a mutual fund scheme. Each and every mutual fund scheme under the AMC will have a fund manager. This Fund manager will micromanage the mutual fund scheme whereas the AMC will manage all funds at a macro level.

Mutual funds are of various types and the decision of which type of mutual fund investment we need to invest is solely based on our discretion. There are many schemes for both the classes of investment viz. debt, equity, gold, gilt, etc. Each scheme entails its own investment philosophy and unique asset investment. Thus, the portfolio and philosophy are unique for each fund. Also, these schemes may have various versions based on the investment tenure or the duration of the fund.

But having discussed the definition of mutual funds and the investments in them, a question may arise about the ticket size of investments. Most of the stock prices of a good decent well-renowned company are somewhere in the range of Rs. 500-2500, so if we want to start investment do we need a large investment to start with. The answer is No. This is where mutual fund gets differentiated from other investment schemes.

Mutual funds give the facility of investing in small amounts through SIPs or Systematic Investment Plans.

Systematic Investment Plans (SIPs)

SIPs are plans in which one investor can invest in a mutual fund scheme periodically with a smaller amount instead of a lump sum investment at one go. SIPs can be as low as Rs. 500 or even lower. These investments in smaller amounts are called SIPs. The final return is calculated by equating each SIPs return over the period through Net Asset Values (NAVs) they were bought at.

Some of the best SIP plans are

 

“Returns” is what matters- how mutual funds make money Mutual funds have provided better returns compared to the bank’s Fixed Deposit or Recurring deposit. Mutual funds strive their high returns from the following two factors:

a) The Expertise of the Fund Manager: In Mutual Fund the entire portfolio is managed by the experts. We investors need not to worry about managing the portfolio or making tactical investment or disinvestment.
b) Power of compounding: The returns get compounded with time resulting in larger returns than expected.

Mutual funds enable us to get good returns in the purview of getting our financial goals. If we assume a conservative return of 10% our invested money can double in a span of around 7 years, without any special efforts put in.

Moreover certain mutual funds even provide tax benefits. Thus mutual funds are a bundle of benefits that enables us to attain our financial goals easily.

Best Mutual Fund to invest in

Disclaimer: This is just a list of well-performing funds based on past performance and not a recommendation. Please invest according to your risk profile and investment objective.