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An introduction to Mutual funds

An introduction to Mutual funds

An introduction to Mutual funds

Prologue

Before we come straight to the point on defining what a mutual fund is, when we have very little knowledge on the subject, we begin by understanding that a mutual fund is an investment aimed at making profitable returns. Let us take you through this written guided tour to help you better understand what a mutual fund is. Let us begin with investments.

Investments – Meaning and Uses

In the financial context, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will provide a profit or be sold later at a higher price. Investments are made by people because saving the money in their banks decreases the value of their money. Investments are important as they:

  • Give you returns
  • Help you in staying ahead of inflation
  • Help you in building wealth
  • Investing can help you in saving on taxes
  • Help in achieving your other financial goals

Mutual Funds – A Basic understanding

By definition, A Mutual fund is a financial tool comprising of a big pool of money collected from different investors to invest in stocks, bonds, money markets, and other assets. This pool of money is collected and maintained by Professional Money Managers or in some cases, Asset Management Companies (AMCs) who allocate the fund’s assets to produce capital gains or income for the investors. Want to know which mutual fund to invest in? Click here and read real exciting stories and experiences of mutual funds by people and then decide what is best for you!

What are Securities?

So basically, at the time of investing in a mutual fund, you and hundreds of other investors like you give their money to an AMC or a money manager, who in turn allocates the pool of money to different Securities based on a common financial goal.

Security is a financial instrument that has a monetary value and can be traded. Some examples are Stocks, bonds, money markets, etc.

After the money has been invested in different securities, the percentage of returns depends on which mutual fund the money is invested in. this is known as a Portfolio.

What is a portfolio?

In simplest words, a portfolio is like a resume of an employee which gives basic information about that particular mutual fund, its investment objectives and so on. The percentage of returns of a mutual fund completely depends on the performance of its portfolio. So, buying a share or a unit of a mutual fund is equivalent to buying the performance of its portfolio.

Rate of returns from Mutual funds

Investing in Mutual funds means facing a variety of risks. It can give a return rate ranging from 4% to more than 30% depending upon where your money has been invested by the Money manager or the AMC. Mutual Funds are another type of indirect investment which has many different types. These are listed for your convenience as follows:

Types of Mutual Funds

The different types of mutual funds depend upon the basis of investment done by your money manager. Broadly, Mutual funds can be classified into three categories. These are:

  • Equity Mutual funds: An Equity mutual fund or an equity fund is a mutual fund that principally invests in stocks. It can be either actively or passively managed. Equity funds are also known as stock funds.

 

  • Debt Mutual funds: A Debt mutual fund or a debt fund is a mutual fund in which the core holdings consist of fixed-income investments. The cost of fee charges on debt funds are lower than those of equity funds as overall management costs of debt funds are much lower than that of equity funds 

 

  • Hybrid Mutual funds: A hybrid mutual fund or a hybrid fund is a mutual fund that typically invests in a mix of stocks and bonds. Due to this, it is characterized by a diversification among two or more asset classes as mentioned above. A hybrid fund is also known as Asset Allocation Fund.

 

In conclusion, mutual funds appear to be a unique concept of investment where an investor invests in different securities at the same time, faces a variety of risks yet gains somehow or the other. Bankquality.com helps you choose your right kind of mutual funds for you. We provide you a unique opportunity to make an informed choice by reading the customer reviews on the concerned issue, and not only that, you can also review your experiences of financial institutions and help others make the informed choice as well! Sign up and join our community today!