Decided to start investing, but words like ‘mutual funds’ and ‘cryptocurrency’
have left you scratching your head wondering what all of this is about?
Let us simplify mutual funds for you by telling you the basics, so that you can decide for yourself whether mutual funds are the right investment for you.
But first — why mutual funds? This is simply because a savings bank account just doesn’t yield that much in returns.
Let’s take an example;
Aarushi works in an advertising firm. Driven and hard-working, she draws a good salary and diligently saves a part of it each month. However, the savings account she parks her money in pays very little interest. With the cost of living on the rise, Aarushi worries that a savings bank account isn’t enough.
She’s right!
Why are mutual funds so popular with beginners?
Let’s understand mutual funds with the simple analogy of planning a road trip.
There are always those super organised friends who do all the planning right? They make the hotel bookings, arrange all the meals, organise the transport, and plan for all the outings. All everyone else needs to do is contribute their share of the cost. When organising the road trip, the contributions from your friends are pooled together.
Mutual funds are similar. A mutual fund is an investment vehicle that collects money from a large group of investors and one person (the fund manager) decides which mutual funds to allocate the money in.
How is the investors’ money allocated?
The fund manager follows the objectives of the mutual fund scheme while allocating the pooled investment. Like your enthu-cutlet friend who knows exactly which places to include in the itinerary for maximum fun, an expert fund manager knows how to allocate the funds to different securities to generate good returns.
How are the returns distributed among the investors?
The returns are distributed in proportion to the number of mutual fund units that each investor holds. However, before making any pay-out, the fund house deducts certain charges. That includes fund management fees and other costs associated with running the mutual fund.
1. Mutual funds are managed by asset managers professionally
The fund house appoints asset managers, also known as fund managers, to manage mutual funds in India. Like your enthu-cutlet friends, these asset managers understand how to identify the best stocks that can generate maximum profits. If you don’t have the financial knowledge or time to monitor the markets, mutual funds offer an easier way to invest.
2. The risk gets reduced through diversification
The money in mutual funds is invested in multiple sector stocks. If one asset class incurs a loss, it can be managed by the profit made in another sector or asset classes.
3. Liquidity
Mutual funds can be easily bought and sold in the short term. Thus, liquidity is how quickly a mutual fund can be purchased or sold without causing a drastic change in the asset’s price. Some funds may have a specified lock-in period and may not be as liquid.
Mutual funds in India have very low costs. Despite low costs, mutual funds also provide you with high returns. Returns (aka the profits or losses that you make on an investment) are calculated based on the amount grown within the given time frame.
Investing in mutual funds in India via the equity market can offer you tax benefits. Investments made in ELSS are exempted under Section 80C of the Income Tax Act.
Many beginners prefer investing in mutual funds because they are extremely affordable. You can start investing with minimal amounts such as ₹500. You can choose to put your money into an SIP (Systematic Investment Plan is a way of investing money in mutual funds at regular interval) or a lump-sum amount investment.
If you’re completely new to the world of investing and would like to start with an even smaller amount, then Deciml lets you invest as little as ₹1 in Mutual Funds — by rounding up you spends and investing your digital spare change, automatically.
Know more about how that works here.
Fund manager: A fund manager is a person who decides where to invest your money in the mutual fund.
Returns: Return is a profit or loss on an investment.
SIP: Systematic Investment Plan is a way of investing money in mutual funds at regular interval. The popular frequency is a monthly SIP.
- A mutual fund is an investment vehicle that collects money from a large group of investors.
- Expert fund managers professionally manage active mutual fund schemes.
- If you don’t have the financial knowledge or the time to monitor the markets, mutual funds offer an easier way to invest.
Decided to start investing, but words like ‘mutual funds’ and ‘cryptocurrency’
have left you scratching your head wondering what all of this is about?
Let us simplify mutual funds for you by telling you the basics, so that you can decide for yourself whether mutual funds are the right investment for you.
But first — why mutual funds? This is simply because a savings bank account just doesn’t yield that much in returns.
Let’s take an example;
Aarushi works in an advertising firm. Driven and hard-working, she draws a good salary and diligently saves a part of it each month. However, the savings account she parks her money in pays very little interest. With the cost of living on the rise, Aarushi worries that a savings bank account isn’t enough.
She’s right!
Why are mutual funds so popular with beginners?
Let’s understand mutual funds with the simple analogy of planning a road trip.
There are always those super organised friends who do all the planning right? They make the hotel bookings, arrange all the meals, organise the transport, and plan for all the outings. All everyone else needs to do is contribute their share of the cost. When organising the road trip, the contributions from your friends are pooled together.
Mutual funds are similar. A mutual fund is an investment vehicle that collects money from a large group of investors and one person (the fund manager) decides which mutual funds to allocate the money in.
How is the investors’ money allocated?
The fund manager follows the objectives of the mutual fund scheme while allocating the pooled investment. Like your enthu-cutlet friend who knows exactly which places to include in the itinerary for maximum fun, an expert fund manager knows how to allocate the funds to different securities to generate good returns.
How are the returns distributed among the investors?
The returns are distributed in proportion to the number of mutual fund units that each investor holds. However, before making any pay-out, the fund house deducts certain charges. That includes fund management fees and other costs associated with running the mutual fund.
1. Mutual funds are managed by asset managers professionally
The fund house appoints asset managers, also known as fund managers, to manage mutual funds in India. Like your enthu-cutlet friends, these asset managers understand how to identify the best stocks that can generate maximum profits. If you don’t have the financial knowledge or time to monitor the markets, mutual funds offer an easier way to invest.
2. The risk gets reduced through diversification
The money in mutual funds is invested in multiple sector stocks. If one asset class incurs a loss, it can be managed by the profit made in another sector or asset classes.
3. Liquidity
Mutual funds can be easily bought and sold in the short term. Thus, liquidity is how quickly a mutual fund can be purchased or sold without causing a drastic change in the asset’s price. Some funds may have a specified lock-in period and may not be as liquid.
Mutual funds in India have very low costs. Despite low costs, mutual funds also provide you with high returns. Returns (aka the profits or losses that you make on an investment) are calculated based on the amount grown within the given time frame.
Investing in mutual funds in India via the equity market can offer you tax benefits. Investments made in ELSS are exempted under Section 80C of the Income Tax Act.
Many beginners prefer investing in mutual funds because they are extremely affordable. You can start investing with minimal amounts such as ₹500. You can choose to put your money into an SIP (Systematic Investment Plan is a way of investing money in mutual funds at regular interval) or a lump-sum amount investment.
If you’re completely new to the world of investing and would like to start with an even smaller amount, then Deciml lets you invest as little as ₹1 in Mutual Funds — by rounding up you spends and investing your digital spare change, automatically.
Know more about how that works here.
Fund manager: A fund manager is a person who decides where to invest your money in the mutual fund.
Returns: Return is a profit or loss on an investment.
SIP: Systematic Investment Plan is a way of investing money in mutual funds at regular interval. The popular frequency is a monthly SIP.
- A mutual fund is an investment vehicle that collects money from a large group of investors.
- Expert fund managers professionally manage active mutual fund schemes.
- If you don’t have the financial knowledge or the time to monitor the markets, mutual funds offer an easier way to invest.
