What is Mutual Fund: A Beginners Guide

Yes, You are right it is a mutual fund guide for beginners. If you are still confused that should I invest in the mutual funds or not this article might help you?

From the last 3-4 years, mutual funds got so much attraction in-crowd. But some people are still unaware of mutual funds. For those, I am trying to explain to them what mutual fund really is?

Today we will talk about mutual funds. It doesn’t matter how many times we see the ads ‘Mutual Fund Sahi Hai’ but we still confuse and fearful.

What if we have a loss, maybe they are not saying all the truth in the ads. And so many questions regarding that.

Why this happens, because so many people don’t know exactly what is a mutual fund. And how do they work? And also our Bollywood movies defame the stock market so much.

But let me tell you that even you are invested in the worst scheme of the market, then also you will get a very good return only if you are invested for a long time. And these returns are as good as your FD returns. It means you will easily get more than 8% interest on your investment if you are invested for a long time. Because of the huge return potential, you can’t avoid mutual funds.

Ways to Invest in Share Market

There are 3 ways o invest in the share market.

A). To Analyze Yourself and Then Invest

The first way to invest in any mutual fund scheme is that you can do your own research and invest in them. You can find their past returns and other things on your own. The main advantage is that you don’t have to depend on any other person.

And you also don’t have to give any fee. But the disadvantage is that this is a time taking process. And you may not have that much knowledge to find out a good stock and it will take time to gather that much knowledge.

B). To Take Help of Any Investment Advisor

Another way is to take the help of any investment advisor. He will do all the research whatever is required you just have to give them their fee. But also in this case you have to do all the transactions. The expert will only suggest you some good schemes.

C). By Mutual Funds

Another way to invest in the market is to invest through mutual funds. Mutual fund houses have their own group of experts who do all the research on behalf of you and they will also invest in the share market. You just have to give them their fees. That’s all you have to do if you have chosen a good fund them you will get a good return as well.

What is The Concept of The Mutual Fund

So many people thought that mutual funds are only invested in the share market. But this is not full truth If you want you can invest in the gold, real state, debt funds and also in the share market or equity market through the mutual fund. But when someone is talking about risk, volatility then it is the talk in the context of the equity market.

Now understand the concept of the mutual fund.

Let’s assume you have 20000 rupees. And you want to invest in a company named ABC. And the price of ABC company is 25000 rupees then how will you invest???

This is where the concept of mutual funds arises.

At this place, mutual fund companies launch their mutual fund and they take tiny money from so many peoples.

Let’s assume they take 1000 rupees to 500 people then fund company have 5,00,000 rupees. Now they can buy 20 shares of ABC company.

And how will you get your profit?

For this fund companies assign NAV (Net Asset Value) for their fund. If their 1 NAV = 500 rupees then all the profit will divide by total no of NAVs and everyone will get their profit according to how much NAV they have.

Every mutual fund company assigns they are eligible persons as their fund manager. And they charge you their fee as an expense ration. 

Advantage of The Mutual Fund

1. Not Require Much Money

The first advantage is that if you want to invest in the stock market and you don’t have much money to invest or you are afraid of losing your money then the mutual fund will be the best pick for you.

2. Peace of Mind

Once you have invested in the mutual fund then it’s their (mutual fund company’s) headache to buy and sell shares. You even don’t have to think about this and you have to live your life fullest.

3. SIP

Have you heard about SIP (Systematic investment plan), you just have to set a mandate in your bank that this amount (it can be 500/ month, 1000/ month or anything you want) I want to invest in as a SIP and that amount will be automatically invested in that fund.

Disadvantages of The Mutual Fund

Now we will discuss the disadvantages of the mutual fund because there is nothing in this world which doesn’t have any disadvantages.

1. Expense Ratio

Expanse ration is one of the disadvantages of mutual funds. The expense ratio is the fee that mutual fund companies take to their investors as a service fee.

We are using their service so it is obvious to give them fee but some mutual fund companies charge so much expanse ratio. Even some funds have a 3-4% expense ratio.

Now you may think about what you can do with 1 or 2%. I am giving you an example so that you can figure it out that is it right or not?

2. Greed

Greed is another disadvantage of the mutual fund. There are so many good companies out there in the market. But also some very greedy companies are there. Their only goal to make money from so many people so that they can charge them a fee as an expense ratio.

They spend more money on marketing and branding so that a large no of people invest in their mutual fund. They don’t care about your money, they don’t care about returns.

So this all about the mutual fund. I think now you have some idea, what mutual fund actually is. Start your investment as soon as possible. This will help you to get good returns.

Know more about types of mutual fund: My Knowledge Club

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