What is Mutual Fund and how to invest

What is Mutual Fund?

A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt.

It is the ideal investment for the new player who does not know much about investing. It has comparatively low risk compared to equity market, as you money is diversified. Though it is not an alternative to Stock market, but definitely a good option to invest. All mutual fund are regulated by SEBI.

The biggest advantage of investing through a mutual fund is that it gives small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult to create with a small amount of capital.

Types of Mutual Fund

Mutual funds are classified into various heads, but the main types which is segregated into 3 types are

Open ended Funds

These are the most invested funds type which are short-term (less than 5 years). Basically the investor can keep the money in this fund as long as they want. There is no limit of investment. There is no lock in period, so the investor can liquidate the money whenever they want. They can be purchased or redeemed throughout the year.

Closed Ended Funds

On the other hand these funds can only be bought at IPO and can only be redeemed at the maturity date. The stock price of a closed-end fund fluctuates according to market forces, such as supply and demand. To provide for liquidity, these schemes are often listed for trade on a stock exchange. Unlike open-ended mutual funds, once the units or stocks are bought, they cannot be sold back to the mutual fund, instead they need to be sold through the stock market at the prevailing price of the shares.

Interval Funds
 These are funds that have the features of open-ended and close-ended funds in that they are opened for repurchase of shares at different intervals during the fund tenure.

Other Types of Mutual Fund

  1. Equity Funds
  2. Debt Funds
  3. Money Market Funds
  4. Balanced Funds
  5. Growth Funds
  6. Income Funds
  7. Liquidity Funds

Click here and see more types of funds, I have mentioned the most common fund types.

How To invest

Investing in mutual fund is similar to investing in stock market, you need to have a study of a specific fund throughly. You can invest directly by yourself by selecting the best fund after analyzing that fund for sometime. Click here and find out the best funds to invest in. By investing on your own you save commission on the fund.

But if you are new to mutual fund it is advisable to hire a mutual fund advisor. Because they have done the research on their part and will be able to manage your money in a proper way. You can either start with SIP(Systematic Investment Plan), which is a monthly investment of a fixed amount regularly in a mutual fund scheme, typically an equity mutual fund scheme. An SIP can be weekly, monthly, quarterly, etc.

There also some funds in which you can put lump sum amount. It is advised to invest lump sum if you are putting your money for a long-term (5+ years). In some fund you can also get fixed return monthly. remember mutual funds also fluctuate according to the market. NAV(Net asset Value) changes according to the asset prices inside that MF.

Visit Moneycontrol and pick your best MF for investment. I have shared the knoweledge i had about Mutual fund, i will learn more as i am investing in MF.


Originally published at ReviewStories.