Mutual Funds: How and Why to Invest in Them

A mutual fund is one of the easiest ways to get started on your wealth creation journey. It is essentially money pooled from various investors, which is then managed by a professional fund manager. The fund manager invests this money into stocks and/or other securities in order to generate returns for the investors.

Mutual funds have the potential to deliver inflation-beating returns. It is thus a great way to convert your savings into wealth, and meet your financial goals effectively.

Today, a variety of mutual funds are available in the market. Whether you are a conservative, moderate or aggressive investor – you can invest in mutual funds that suit your risk profile and investment objective.

You can get access to a variety of mutual fund schemes and the right guidance from experienced professionals at Prabhudas Lilladher. To invest in mutual funds with PL, click here

In this article, let’s take a look at the following:

  • Types of Mutual Funds
  • Why Invest in Mutual Funds
  • How to Invest in Mutual Funds
  • Key Terms to Know

Types of Mutual Funds:

To invest in mutual funds, it is important to first understand its types. Each type or category adopts a different investment style, strategy and objective. The Securities and Exchange Board of India (SEBI), which governs the mutual fund industry, classifies mutual funds as follows:

Based on structure:

  • Open-ended Funds – where investment and redemption can be done anytime
  • Close-ended Funds – where investment can be made only during a particular period, and redemption is possible only after the maturity date.
  • Interval Funds – where investment and redemption can be made in intervals

Based on asset classes:

  • Equity Funds – which invest a majority of their funds in equities. These are further divided into large, mid, small cap or flexicap funds.
  • Debt Funds – which invest a majority of their funds in fixed-income instruments like corporate bonds, government bonds, etc.
  • Hybrid Funds – which invest in both equity and debt instruments

Based on investment style:

  • Active Funds –where the fund manager plays an active role in deciding the allocation of funds within a scheme and tries to outperform the benchmark
  • Passive Funds – where the portfolio is constructed by tracking an index, and eliminates human bias

These are the broad categories or buckets within which mutual funds are categorised. It is important to assess your investment objective, risk appetite, returns expectation and investment horizon, and then choose a mutual fund that aligns with it.

Start your wealth creation journey today and benefit from the ‘Power of Compounding’ by investing in mutual funds.

To invest in mutual funds with PL, click here

Why Invest in Mutual Funds

When you invest in mutual funds, you get access to a variety of benefits. Here are a few key advantages:

  1. Diversification

From equities and bonds to money market instruments and precious metals, a mutual fund can provide exposure to various asset classes. It also offers diversification within an asset class. For example – different stocks and sectors within equities. Diversification reduces risk and has the potential to provide better risk-adjusted returns.

  1. Professional Management

By investing in mutual funds, you don’t need to actively monitor the markets. Instead, professionally qualified fund managers will handle your investments and rebalance the portfolio as necessary, to meet the objectives of the scheme.

  1. Flexibility

To invest in mutual funds, you can either opt for the lumpsum route, or the Systematic Investment Plan (SIP) route. Also, you have the flexibility to choose how much you want to invest, as well as the periodicity of the investment.

  1. Returns

Mutual Funds have the potential to generate higher returns as compared to traditional investments. Also, investment in ELSS mutual funds provides the benefit of tax savings.

  1. Liquidity

Investment in open-ended mutual funds can be redeemed on any working day and the funds get transferred back to your account within 1-3 working days.

  1. Transparency

The investment objective, risk level, allocation of funds, fund manager’s experience, history of the scheme’s returns, net asset value, total assets under management and all the other relevant information is easily available in the Fact Sheet of the scheme.

How to Invest in Mutual Funds

Choosing a mutual fund scheme requires a sufficient understanding of the product and the risk and rewards that come with the particular product. So, seeking advice from an experienced professional is ideal, before you invest in mutual funds.

You can invest in mutual funds with Prabhudas Lilladher. PL enables you to choose between a diverse range of mutual fund schemes.

To invest in mutual funds with PL, click here

Download the PL DigiMF app, a one-stop solution for all your Mutual Fund investment needs. It enables you to track your investments, access insight-rich reports and performance analysis and also undertake online transactions for your mutual fund investments.

Key Terms to Know

AUM: Assets Under Management is the total value of investments managed by a mutual fund.

Units: Represents the investor’s holding in a mutual fund.

NAV: Net Asset Value is the current value of the investment portfolio, divided by the number of units. It is essentially the price at which every unit can be redeemed.

SIP: Systematic Investment Plan is a periodic and disciplined way to invest in mutual funds.

NFO: New Fund Offer is a new mutual fund launched by an asset management company.

Benchmark Index: The index against which the scheme’s returns are compared.

To get a better understanding of mutual funds and its types, and to start investing in mutual funds, click here


Source link


Comments are closed.