Concept Of Mutual Fund

MUTUAL FUND

Nowadays, money savings is most important for all of us. Savings and investment, both are different. As same as investment and insurance. Saving money through investments and securing your loved ones through insurance are two separate things. 

So let us discussed what is the meaning of mutual fund and explore how we can invest in them.

Introduction :

A mutual fund consists of a collection of funds overseen by an experienced fund manager. Mutual funds in India are established in the form of a Trust under Indian Trust Act, 1882, in accordance with SEBI (mutual funds) regulations, 1996.

A mutual fund is a form of investment where money is pooled together from multiple investors and invested in a variety of assets such as stocks, bonds, government securities, and money market instruments. Professional fund managers handle the investment of the money collected in the mutual fund scheme, aiming to meet the investment objectives of the scheme.

The profits or gains generated from this collective investment scheme are distributed among the investors based on their proportionate contribution, after subtracting any expenses and fees. This distribution is calculated using the scheme's Net Asset Value (NAV). In exchange for managing the investments, the mutual fund charges a small fee.

Why invest in mutual funds :

• If you don't have the inclination or time to research the stock market then it is the best way to grow your wealth on investing mutual funds.
• You have no pressure or no fine of amount, because what amount is on your wish (small or medium).
• Investing right funds, there is no risk of money loss like stock market.
• The main advantages are that you can invest in a variety of securities for a relatively low cost and leave the investment decisions to a professional manager. 
• It offer multiple choices for investment across equity shares, corporate bonds, government securities and money market instruments, providing an excellent avenue for retail investors to participate and benefit from the uptrends in capital markets.

Investing in mutual funds is often seen as a safer, more convenient alternative to investing directly in individual stocks. Here are several reasons why mutual funds can be a better choice for many investors: There are various difference between mutual fund and stocks :

1. Diversification - By investing in a mutual fund, you gain exposure to a variety of assets (stocks, bonds etc.), which spreads risk. If one stock underperforms, the impact is diluted because other assets in the fund might still perform well. While investing in individual stocks doesn’t automatically provide this diversification. You’d need to buy a variety of stocks yourself, which can be both costly and time-consuming.

2. Professional Management - Most mutual funds are managed by professional fund managers who analyze and adjust the fund's holdings to achieve optimal performance. They make decisions based on extensive research, which is beneficial if you don’t have the time or expertise to manage investments actively. While investing in stocks directly requires you to research companies, analyze performance, and make buying or selling decisions, which can be overwhelming for non-professional investors.

3. Lower risk for beginner investors - They are generally less volatile than individual stocks because of diversification. This makes them an appealing option for beginners or those with lower risk tolerance. While individual stocks can be highly volatile, with prices fluctuating significantly in short periods. This can lead to higher returns but also higher risks, which might not be suitable for everyone.

4. Affordability and accessibility - Many mutual funds have low minimum investment requirements, sometimes as low as 500 or even lower. They allow you to start small and build wealth over time, with the option of automatic monthly contributions.While building a diversified stock portfolio usually requires a larger capital investment. You’d need to purchase shares in multiple companies to achieve the same level of diversification a mutual fund provides.

5. Time and convenience - Investing in mutual funds can be a "set it and forget it" approach. Once you choose a fund, you don’t have to monitor it daily. Fund managers take care of the buying, selling, and portfolio balancing. While stock investing requires active engagement, especially if you’re interested in short-term gains or avoiding losses during market swings. This means spending time on market analysis, which isn’t ideal for everyone.