Oh, we know you have seen the “Mutual Funds Sahi Hai advertisement” or at least have had someone tell you about how you must invest in mutual funds. High chance you have also googled what mutual funds are and what are and which mutual funds should you invest in. But, did you get overwhelmed and confused with the information and how to decide what is the right mutual funds investment for you?
Ah, do not worry! We have got you covered. Let us explain to you what mutual funds are and which is the right mutual funds investment for you in this super simple guide we made for you.
ABC of mutual funds
So think of Mutual funds like a sports team. Players (aka Investors) such as yourself make the team and have a common interest and objective. Now you need a coach to guide you, help make the right decisions for the team, and use their expertise to lead the team towards winning, in our case- making profits.
Now, if you are wondering who can be this coach, let us tell you that. A Coach can be someone who has enough and more knowledge about the field, is reliable, can understand the market and anticipate trends.
This Coach in the Mutual Funds world is known as the Fund Manager. She/he are experts and can strategically invest your money in equities, bonds, and other securities and help you make money.
Next thing to understand is that like any game there can be wins and losses. In the Mutual Funds world, these wins and losses are profits and losses on your investments and are subject to market risk. However, a good Fund Manger can anticipate maket trends, and can make strategies to reduce the risk of losses.
A Fund Manager manages what is called a Portfolio. The gains (or losses) are shared collectively by the investors in proportion to the contribution they made towards the fund.
Let us now help you understand why exactly are “Mutual Funds Sahi”
- Managed by an expert
Okay, so now you are in this team of investors with a similar objective but none of you guys are experts at investment or money management. So, you turn to your team coach, this guy knows investments, money management, markets and everything else one needs to know about mutual funds in and out.
Fund Manager ensures that your investments can get reasonable returns, losses are mitigated, investments are made based on research and analysis and much more.
Your mantra for investments should be “Strength lies in differences and not similarities”. In our Mutual Funds world, this means when you put your money in different assets, you reduce the chances of making a loss.
With mutual funds, your money gets divided in different ways. The fund Manager analyses your objectives, risk-taking capacity, and much more and plans an investment path for you.
For example, the mutual fund you invest in contributes your money in equity stock, the Fund Manager will invest in a way that your portfolio includes stocks from different industries, stocks of different price points, etc.
There are a lot of other benefits of investing in mutual funds such as tax benefits, returns, flexibility, liquidity, low investment cost, and much more.
Main types of Mutual Funds / what are the types of mutual funds?
Based on Asset Class, there are 4 broad categories of Mutual Funds
- Equity Funds
Equity Funds are like a new player who can help you make great profits if used right. However, they come with some risks.
Under Equity Funds, your money is invested in stocks by the Fund Manager and you can contribute to this fund n 2 ways- either all at once which is known as Lumpsum or contribute a certain amount every month which is known as SIP or Systematic Investment Plan.
- Fixed Income Funds
Fixed Income Funds, also known as Debt Funds are like a seasoned player in your team. They have more diversified skills and are less risky to have on your team.
Under Fixed Income Funds, a chunk of your investments is put to Fixed income securities such as Govt. debentures, bonds, and securities. These are perfect for investors that are risk-averse.
- Hybrid Funds
This is like the team player that has the best features from other players. Hybrid Funds combine Equity Funds and Fixed Income Funds and can ensure optimal returns with limited risks.
- Money Market Funds
Money Market Funds are like the dark horse of the team. These players don’t last for long, but as long as they do, they make a significant contribution to the team.
Money Market Funds yields a considerable return on investments and is panned over a short period of time. This fund is ideal for investors who wish to invest for a short period of time and have a low-risk appetite.
So, now that you know more about your Mutual Funds, when are you starting your journey?