Everything you need to know about mutual funds!

Even though mutual funds are not a new concept, many people are unaware of them. Continue reading to learn everything there is to know about investing in mutual funds.

Mutual funds are amongst the most cost-effective investing options available to the general public. This does certainly assist people in creating wealth and achieving all of their financial goals in a more disciplined manner. This is owing to its long-term capacity to provide positive inflation-adjusted returns. Even though mutual funds are not a new concept, many people are unaware of them. This post will educate you more about mutual funds. 

What exactly are mutual funds? 

A mutual fund is a type of financial instrument that pools the funds of several individuals who have similar investing goals. Furthermore, as approved by the Securities and Exchange Board of India (SEBI), the fund manager invests this pooled money across several asset classes such as equities, bonds, gold, and other securities. The profits and losses from such investments are distributed among investors based on the number of units they own. 

The Advantages of Investing in Mutual Funds 

Professional management 

Professional fund managers with the necessary educational qualifications and years of experience managing a portfolio of securities manage mutual funds. 

Liquidity 

Because most mutual funds do not have a lock-in period, they offer excellent liquidity when compared to other similar products like Unit Linked Insurance Plans (ULIP). This allows you to have cash on hand in case of an emergency. 

Returns 

Historically, mutual funds have outperformed in terms of risk-adjusted returns. In reality, in terms of returns, it is a significantly superior product to bank FDs. Furthermore, professional management assists it in lowering market risk and providing greater inflation-adjusted returns. 

Diversification 

Because mutual funds invest in a diverse range of stocks and bonds, you gain from diversification, which lowers the chance of becoming overly reliant on a small number of securities or even a single asset class. 

Regulation 

In comparison to other products, mutual funds are extensively regulated by SEBI and are subject to extensive disclosures to investors. Furthermore, SEBI has strengthened the requirements over time. This aids in the implementation of transparency. 

The two most common methods of investing in mutual funds 

Systematic Investment Plan (SIP) 

SIP is a mechanism that allows you to invest a certain amount on a regular basis. SIP is one of the most popular strategies to invest in mutual funds since it gives ease to clients while also instilling the habit of disciplined investment. Furthermore, it helps to reduce risk because investing via them averages out the cost of purchasing mutual fund units. 

Lumpsum 

When you have a large sum of money that you do not normally get, you can put it in mutual funds. Lumpsum is nothing more than a one-time investment in mutual funds. Lumpsum is typically favoured by individuals who understand the market's pulse.