Considering to invest? Wondering what mutual funds are? This blog will tell you, all mutual funds basics so you can get a fair idea about this investment opportunity.
What are mutual funds?
Mutual funds are a body of investments drawn from different types of investors who can be individuals, companies or even organizations. The house where you have your mutual fund from will hire a manager to do the investment. This manager is an expert who will allocate funds to make the money grow in the best possible way.
Types of mutual funds
There are various types of mutual funds. But two broad types can best describe mutual funds.
What is an open-ended fund?
You will have plenty of options to choose from when it comes to open-ended fund. These funds do not have any fixed number of shares. If it is available then the investor can buy it. It will also be up to the investor to decide when he or she wants to sell the fund.
What is a close-ended fund?
An investor can purchase a close-ended fund at a discounted value. This is possible as the shares are sold based on total net worth and are offered s initial public offering. It follows the laws of supply and demand and it always trades in the open market.
Difference between load and no-load
If you purchase a no-load fund, you will have more profit in terms of how much you are investing. These funds will not have you incur any extra costs. Load funds will lead you to bear additional expenses depending on the circumstances. One such a crucial case is always at the time of liquidation.
Before buying mutual funds, always consider the load and no-load option to understand better how much wealth you can generate.
Is it beneficial to invest in mutual funds?
The biggest advantage of a mutual fund investment is that it is professionally managed. The fund manager is dedicated to monitoring all funds in the portfolio. He or she will adjust and modify according to the situation. As a professional is handling your money, you can be rest assured, it will be taken care of. There are also tax benefits you can claim. Liquidation in mutual funds is also easier. As an investment, mutual funds will give the investor more scope to grow their money and that too without much involvement.
Selecting a fund
When you look at several funds, you will quickly realize that each fund follows a strategy of its own. There may be a particular type of companies those funds are comfortable investing in. Some might invest in retail, others in automobiles or even start-ups of various kinds. Look for a fund that aligns with your investment style. It is the best way to decide which fund to choose. You can also check fund rankings if you are not sure which one to choose. However, do remember the rankings are reflective of past performance and may not be a great judge for future performance. Invest in a fund, that you identify and believe in.
You will often hear suggestions to cost-average your funds. It simply means you buy units funds at an average cost. It helps to purchase shares when the prices are less and you will have less likelihood of buying shares at a higher price.
Terms to note
- Acid test ratio – It analyzes companies’ recent short-term assets to liabilities ratio.
- Blue-chip fund – These are an investment towards well-established companies who have sound financial goals.
- Debt fund – They are safer than most other funds as they invest in fixed income securities, it can be a government or a company in which they are investing.
- Entry load/ exit load – Entry and exit load fee is an amount which the investor will have to pay at the time of purchase or selling.
- Hedge fund – These funds invest in most complicated portfolios. However, they can garner substantial-high returns.
With a busy schedule you may find, planning intricate investment plan difficult. Mutual funds will give you a variety of opportunity to grow your wealth most productively. Visit online and compare various mutual funds options. Buying mutual funds online from platforms like Kotak securities is easy and convenient.