This post was most recently updated on December 17th, 2022
What are mutual funds? is it SIP? Often people have a dilemma in mind about whether a mutual fund is the same as a stock or whether they are completely different investment tools. On top of this, there are so many types of mutual funds in India.
What are mutual funds?
Mutual funds are investment vehicles that pool together money from many different investors and use that money to buy a diversified portfolio of stocks, bonds, or other securities. The value of a mutual fund is determined by the value of the securities it holds.
Some key points about mutual funds include:
- Mutual funds are managed by professional money managers, who decide which securities to buy and sell based on the fund’s investment objective.
- Investors in mutual funds own shares, which represent a portion of the holdings in the fund. The value of an individual’s shares is determined by the fund’s net asset value (NAV), which is calculated by dividing the total value of the fund’s holdings by the number of shares outstanding.
- Mutual funds offer investors the benefits of diversification, professional management, and liquidity.
- Investors can buy and sell mutual fund shares on a daily basis, although some funds may have redemption fees or minimum holding periods.
- Mutual funds have expense ratios, which are the fees that are charged to cover the fund’s operating expenses. These fees are expressed as a percentage of the fund’s assets and are deducted from the fund’s returns.
It’s important to carefully consider your investment objectives and risk tolerance when choosing mutual funds. It’s also a good idea to research the fund’s performance, management team, and expense ratio before investing.
What different types of mutual funds are available in India?
There are many different types of mutual funds, including:
- Stock mutual funds: These funds invest in stocks and are further divided into different categories based on the type of stocks they invest in (e.g. large-cap, mid-cap, small-cap) or the investment style (e.g. growth, value).
- Bond mutual funds: These funds invest in bonds, which are debt securities issued by companies or governments. Bond mutual funds can be further divided into categories based on the type of bonds they invest in (e.g. corporate, municipal) or the duration of the bonds (e.g. short-term, intermediate-term, long-term).
- Money market mutual funds: These funds invest in very short-term debt securities, such as commercial paper and certificates of deposit. They aim to preserve capital and provide a stable stream of income.
- Balanced mutual funds: These funds invest in both stocks and bonds, typically in a fixed proportion. They aim to provide both growth and income.
- Index mutual funds: These funds aim to track the performance of a specific market index, such as the NIFTY and Sensex. They are often passively managed and have lower expense ratios than actively managed funds.
How to invest in mutual funds in India?
Now that you know what are mutual funds, You can invest in mutual funds in 2 ways:
Direct purchase from the fund house known as Direct funds – This is the preferred choice as it has less expense ratio(mutual fund fees) as the fund house directly manages the customer investments
Purchase via a broker known as Regular funds– This has a bit higher expense ratio(mutual fund fees) as the fund house has to give a commission to the broker via whom the customer has purchased the mutual fund.
There are various websites you can browse to check mutual fund details, few of them are as below:-
FAQs on What are mutual funds?
What is meant by expense ratio in mutual funds?
The expense ratio is the annual fee that all mutual funds and exchange-traded funds charge their shareholders. It expresses the percentage of assets deducted each fiscal year to pay the fund's operating expenses.
Are Mutual Funds a Safe Investment?
Mutual funds are subjected to market risk. Each type of mutual fund carries a certain amount of risk. The risk depends on the exposure to the asset type in the mutual funds.
Equity mutual funds are considered as most risky as the returns depend on the stock market performance whereas Debt mutual funds are considered relatively safe.
Can I get monthly income from mutual funds?
There are certain types of mutual funds which allow systematic withdrawal plans using which you can have a monthly income from mutual funds.
What is the best way to invest in Mutual funds?
It is always recommended to invest in direct plans of a mutual fund because they incur a lesser expense ratio as compared to regular mutual funds.
What is meant by mutual fund sahi hai?
Mutual fund sahi hai is a campaign run by The Association of Mutual Funds in India (AMFI) to promote mutual invest in mutual funds.
What are the risks of investing in mutual funds?
Like any investment, mutual funds carry some level of risk. The value of the securities held by a mutual fund can go up or down, and there is no guarantee that a fund will achieve its investment objective. In addition, mutual funds have expense ratios, which are the fees that are charged to cover the fund's operating expenses. These fees are deducted from the fund's returns and can reduce your overall return on investment.