A mutual fund is a investment platform that pools money from many investors into one large portfolio of stocks, bonds, or other forms of securities.
Managed by professional investment experts, mutual funds provide an opportunity to diversify your portfolio with minimal effort and generate returns on your investment.
A mutual fund issues shares to each investor, which stands for the proportionate ownership in the fund’s portfolio-so the profit and loss are shared by the investor according to their investment.
Through a mutual fund, an individual investor has access to professionally managed diversified portfolios so that risk is spread across multiple securities.
Mutual funds tend to be focused in the large or small companies, particular industries, or regions. There are fees such as expense ratios and commissions, which serve to reduce overall returns.
Most U.S. retirement savings occur through employer-sponsored plans called 401s, and mutual fund investments tend to grow well over time with relatively low investment risk compared to investing on their own.
Investment in mutual funds has many benefits for beginners and experienced investors. Firstly, they are inexpensive. One can start investing in mutual funds with a bare minimum of just ₹500 in SIPs (Systematic Investment Plans).
This way, mutual funds open their doors for people with less capital. Direct plans help save on brokerage and commissions too.
Expert management is the other benefit. Professional fund managers analyse the market, find opportunities, and adjust the portfolio to gain profit from them. Therefore, it ensures that our investments are in very capable, knowledgeable, and accurate hands.
Mutual funds also come with the prospect of better returns as compared to other low-risk investment opportunities such as a fixed deposit.
The ease of choosing your funds based on your risk appetite means you can customize investments with respect to your financial goals. Moreover, mutual fund investment is rather problem-free and accessible with online KYC and investment processes at its doorstep.
The regular SIPs habit will further reinforce in you a habit of investing, and the consistent build-up of wealth also leads to greater growth over time.
This way, equity mutual funds represent just one such flexible, cost-effective, and potentially rewarding long-term financial growth investment.
Types of Mutual Funds
Every type of mutual fund caters to different kinds of investment goals, different risk appetites, and different time horizons.