![[Mutual Fund Explained] Benefits and Types of mutual funds](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhn8CmRz0v5mRLZl9pI7NSzzvSjZ0_nKfe6ZGMaTOEOrLhsVJlW3pl9Lt7mct3XmuqyV96VcmYpDcrbgMkQ2zmSa9ziChpMLugfMHUqPFvSmYmruKFAY07AU34SUXADPUWyptxImoLw9SI5/d/Benefits-and-Types-of-mutual-funds.jpg "[Mutual Fund Explained] Benefits and Types of mutual funds") |
| [Mutual Fund Explained] Benefits and Types of mutual funds |
[Mutual Fund Explained] Benefits and Types of mutual funds || Today we will learn about a mutual fund investment. Mutual fund investment has a special type of investment in which the risk is less than the stock market and the benefit is almost the same.
Note : - It depends on which type of mutual fund you have invested in.
Mutual Fund Investment
It is necessary to know the investment before understanding the mutual fund. There are three important points in any type of investment.
Risk : - The Risk means chances of losing money that used in investment.
Return : - Return means earning benefits (money) on investment funds
Time : - Time means how long an investment is good for returns.
Returns are less and more when time and risk are less and more, which means that returns depend on time and risk.
Through this Article we will get the following information : -
- What is Mutual Fund Investment.
- Types of Mutual Fund Investment.
- Why a mutual fund should be taken or its Benefits.
- How to invest and Points to Remember while investing in Mutual Funds.
What is Mutual Fund Investment.
In Mutual Fund, a lot of people give money to a Fund Houses and a fund manager who invests in different securities takes the opinion of experts.The money invested here is in the Diversification Stage(Not investing money in one place and investing in different types of investment), which reduces the risk and returns are greatly increased. The earnings returns are distributed among the investors, for this purpose the fund houses keeps a small part of the commission. There is a company managing these fund houses, which is called asset management company, For Management, SBI Mutual Fund, ICICI Mutual fund, Axis Mutual Fund, Aditya Birla group etc.
If we talk about risk, then there is moderate to high risk, the risk for different types of mutual fund investment also varies. Risk and returns depend on the asset management company and where the company is investing your money. If the mutual fund company invests in stocks market, then the risk and returns increase and on the contrary, the risk and return are reduced by investing in a fixed deposit. Overall the rate of return is about 7% to 20%.
Types of Mutual Fund Investment.
Mutual funds are mainly divided into three categories : - equity, debt, hybrid funds
Equity Mutual Fund
In this type of mutual fund, the asset management company invests the money of the investor in the stock market, here the risk is almost equal to or less than the stock market, which also leads to very high returns.
Equity mutual funds are also divided into different divisions.
Large/ Mid / Small Cap Mutual Fund
They are divided into three parts based on the company base.
Large Cap mutual fund
In this type of investment fund, money is put on big company such as Nifty's top fifty company or Sensex's top thirty company.
Here the risk and returns are very low because the growth of big company gradually increases and decreases.
Mid Cap mutual Fund
In this type of investment fund, the asset management company invests the money of the investor in mid-cap company rather than investing in the larger company, where there is moderate risk and benefits of returns are also high.
Small Cap mutual fund
In this type of mutual fund investment, the asset management company invests the wealth of the investor on the small company where the risk and benefits of returns are very high because the growth rate of the small company can be very high that the big company may not have. There is also the risks of the small company going into greater losses than others.
| Type | Large Cap | Mid Cap | Small Cap |
| Risk | Low | Low to Moderate | High |
| Returns | Low | Moderate to High | Moderate to High |
| Liquidity | Low | Moderate | High |
| Volatility | Low | Moderate | High |
*Volatility: - Turn investment into returns over a short period of time.
Equity Linked Saving Scheme (ELSS)
ELSS is a special type of mutual fund investment scheme in which the investor can get tax deduction (under Section 80 C) of up to 1.5 lakh on his investment money. In this, the fund manager of the investor invests in high risk to get high returns.
Diversified Equity Fund
Diversified investment would mean investing in different proportions in different investment categories rather than putting investor money in one place.
In this type of mutual fund, large cap / mid cap / small cap three companies are invested together in a diversified investment manner, which reduces the risk substantially and the benefits of returns are managed.
Sector Base Mutual Fund
As the name suggests, in this type of mutual fund investment, investment is done in a specified sector such as banking sector, agricultural sector, automobile sector etc.
Here the risk and returns are very high because it is very difficult to predict the growth of a specific sector its down and its rise.
Index Mutual Fund
The index mutual fund depends entirely on the market SENSEX / NIFTY. When the SENSEX / NIFTY rises, the returns also increase. This is a type of Passively Managed Fund.
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| Types of Mutual Fund Investment. |
Debt Mutual Fund
It is a second type mutual fund in which investment in Debt Instruments. Bonds, debentures, Government . securities, Certificate of deposits are included in debt instruments. They have very low risk due to which they are of low returns.
Liquid Fund
A liquid fund is an investment in which the investment can be converted into returns in a short time, there are very little risk, it can also be called an alternative investment of savings bank.
Gilt Fund
In the Gilt Funds Investor money is invested in government issued bonds by an Asset Management Company. Here the risk is very less because it is borne by the government.
Fixed Maturity Plan
This is a type of savings investment that can also be considered as an alternative to a fixed deposit.It has to be invested for a fixed time, meaning there are a lock-in period, before which returns cannot be obtained.
Hybrid Mutual Fund
This is the last category of a Mutual Fund which consists of a mix investment of equity and debt funds.Some people take less risk, such people invest in debt mutual funds and some people take more risk, such people invest in equity mutual funds. Apart from these, some people are like to invest in some percent debt funds and some of percent in equity funds. This type of mix fund investment is called hybrid mutual fund.
The hybrid funds divided into two parts based on ratio percentage.
1. Balanced Saving Funds
Debt funds 2:1 Equity funds
2. Balanced Advantage Funds
2. Balanced Advantage Funds
Debt funds 1:2 Equity funds
Investment
Why a mutual fund should be taken or its Benefits
Why to take a Mutual Fund, to understand its answer or its benefits, let's understand it in three parts.
Experiences
In order to invest in the stock market, it is very important to have a general knowledge of the stocks but Anyone can invest in Mutual Funds because Assets Management The company has an expert team with knowledge of the stock market, which reduces our work.
Some people do not have stock information and some do not have so much time to understand it, that is why it is the best and beneficial investment.
Risk
We all know that the highest risk is in the stock market, although mutual funds also invest money on the stock market. However, the mutual fund is less risky than the stock market because the investor money investing in diversified stage.
Mutual funds company invests in multiple stocks, which reduces the risk.
Returns
Returns are beneficial when it can beat inflation rate. Mostly inflation rate around more than 5% of investment money and Easier inflation rate can be beat in mutual funds.
Apart from this, if a person wants to gain knowledge of the stock market or invest in it, Mutual funds as a beginner is best option for them.
How to invest and Points to Remember while investing in Mutual Funds
Growth Check
It is very important to check growth before investing in any mutual funds: Compare the five to ten years return of different types of mutual funds, Which will give you an idea of the rate of return.
If the return rate is not able to beat the inflation rate, then such an investment can cause loss.
Entry Load & Exit Load
The second most important point is that you should know about the entry load and exit load, that means the company charges something at the time of entry and exit in the mutual fund.It must also be compared to other Mutual Funds companies.
Expanse Ratio
The assets management company charges some commission for its service, which is called the expense ratio. Often the expense ratio is one to two percent if any mutual fund company charge more than this so, that will not be beneficial.
SIP & LUMP-SUM
There are two processes to invest in mutual funds The first of which is Systematic Investment Plans (SIP) It is a recommended process in which to invest a fixed amount every month. and another process is LUMP SUM, in which the investor invests all the money at once, it is very risky.
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