Whenever the topic turns into mutual fund or share market, the people are so frightened to dive in or pay attention to this topic. But the interesting point is if you invest in the worst scenario, despite this there will be a 90-10 chance to get a return more than FD or other asset investments. So today the discussion will make you invest in mutual funds and teach you about the profits by denying all myths about the mutual fund.
The set of content in this section is specially elaborated for absolute beginners for investing in the mutual fund.
The first biggest misconception about investing in mutual funds is you can only invest in the share market, but this is wrong. You can also invest in Gold, Real Estate, Dead funds etc through the mutual fund.
But whenever it comes to the high risk and high returns segment it counted on the equity context means in share market mutual fund investments.
to know more clearly you need to know all about Share Market first.
there is three basic way to invest in the share market:
You can research your own to find good stocks and then invest.
In this case, the advantages are, end of the day you never depend on anyone to invest in the share market.
But the disadvantages are, it takes a lot of time to find good stocks to invest in because you never know in the early time of your learning that which stocks are good to invest in.
You can take advice from experts to invest in good stocks.
In this case, the advantages are this will not take so much time and you will depend on experts’ advice.
But the disadvantages are you have to maintain daily purchasing and selling of stocks. The advisor will give you the best choices to invest in but the final decision to invest will be in your hand.
The third and final way is mutual funds to invest.
You can also invest in the share market through the mutual fund in which you don’t need to track your investments, fees will be lesser than any other options above, and you don’t need to gather a mass knowledge about the stock market; you just have to choose a good fund to invest.
Now you know the basic purpose of the mutual fund is that it gives you exposure to the share market.
How it works:
Now think you have 20,000/- to invest and you want to invest on your own or by an investor direct to the share market. But in this case, if you choose a high-priced stock to invest it will take 20,000/- in only one stock.
But the interesting fact about investing in the mutual fund is, mutual fund collects small amounts from many people and raise a large fund. Then the large fund is used to invest in high-priced stock.
let’s go through with an example:
let it consider that we have a company called ABC and its share price is 20,000/-,if you have only 20,000/- rupees in total to invest then it will take all from you to invest. But what mutual funds do, they collect 200 rupees from 100 people and raise 20,000/- rupees to buy the same stock. Now you have the question in your mind what you will get individually from this? from this you will get 200 rupees of mutual fund unit in which you invested to buy the ABC’s stock. If we say it more clearly, 100 people invested unitedly to the ABC’s stock and now you all are a co-holder of this stock.
So what does mutual fund do, it allows you to invest money in several companies at less price.
Mutual funds do this: they make a fund management company which we called AMC(Asset Management Company). After that AMC launches a fund in which they collect money from several people to invest in several companies and they have their experts who will track your money. Now many people invest in that and a final collection is raised which is called AUM(Asset Under Management). Now AMC will hire a fund manager who will invest the 100 person’s money in several stocks with an expert strategy. And you will get a unit of these mutual funds skim which you can sell whenever you want the amount will be disbursed in your account in two days.
these are the basic conception of mutual funds.
Now discuss the advantages and disadvantages of mutual funds:
- More Diversity
With lesser money, you will get more diversity to invest in several companies that mean in this pool of money in the mutual fund skim you have the opportunity to invest in many companies.
- Investing With An Expart
You don’t need to worry about your money because there will be experts who will handle your money and invest your money with a proper strategy but this is only possible in mutual fund because if you want to hire an expert for direct investment then you have to pay his fees at least but when you have a small amount of money and also you need to hire an expert then you can choose the mutual funds. Experts fulfilled their expanses from this pool of money. And this chip rate to get the expert is called Expanse Ratio. You should choose a lesser expanse ratio to get more profit.
- Don’t need to track
Whenever you invested in a mutual fund, it will be the expert’s duty to analyze the market and invest in the best choices to get the best, so you don’t need to track the stock market for investments, you can sit back easily and focus for your other work.
You can set a mandate in your bank, which will be auto deducted from your bank. The amount will be used for the mutual funds. In one word it is an automatic deduction from your account to invest in mutual funds.
There are so many mutual fund agencies that are more focused to collect money rather than managing the money. They are actually more focused to earn the commission only instead of caring about the customers, that’s why they raise a huge amount of money and create a huge pool of money but at the end of the day they can’t manage the money.
The worst flaw of a mutual fund is it is upon you to decide that when to take back your money from the market. In a market crash situation, the manager actually wants to buy more stocks but common people are so afraid at that moment to continue, that they take back all their money from the market at a huge loss.