What are Mutual Funds and how do they work?

“Mutual funds give people the sense that they’re investing with the big boys and that they’re really not at a disadvantage entering the stock market.”

-Ron Chernow

Everyone is an investor one way or another. When it comes to investing our time, it is best to do so in things we love. Energy is best spent trying to accomplish something great in life. When it comes to money we earn it and spend it. What about investing in it? Investing is done to store up the idle cash into a safe place and get something at the end. Mutual Funds are the best way to do that. The award-winning writer, Mr. Ron Chernow said it right, with mutual funds you don’t invest in the mediocre accounts but rather in between the bulls and bears in the market.

Let’s look at all the obvious questions you might have for a Mutual Fund:

• What is a Mutual Fund?

  It is a vehicle of investment which allows investors to collectively invest in various avenues like equity, debt, and gold; it is collected and managed by a Professional Fund Manager. There are various kinds of schemes for different investors based on his/ her level of risk appetite and objective. There are two ways of making an investment: Systematic Investment Plan (regular installments) or a one-time Lump Sum payment.

• Why should you invest in a Mutual Fund?

  A mutual fund allows a person to trade with the big-time investors in the stock market without the need of actually entering that place. It creates access to the investor to a wide range of assets, allowing the diversification of risk. This way, one or two assets may perform poorly but you will still earn a substantial return. Adding to that, your funds are professionally managed by expert fund managers giving you less to worry about.

• Where can things go wrong?

Market conditions fluctuate drastically. Today you’ll see the green arrows smiling at you and just twelve hours later those red arrows are grinning at you. So in situations like this, the best practice is to stay put and remain invested. The Fluctuations in the market will settle. Remember, the market that is down would have to rise again. The simple logic is to hold on to your investments when the market is low so that you can hold more units of the stock and when the market performs well, one can consider selling the stock.

• Who is in charge of your scheme?

As mentioned before your investment is handled by the qualified Fund Managers. They pursue a fund’s success by actively trading assets with the money invested in the fund. The fund manager is required to trade in accordance with the structure and objectives put forth by the investors for their investments.

• How does it work?

You must consult a financial professional to determine what funds are best suited for your needs. You can then go directly to the AMC or just use an investment app like Fisdom to start trading. You choose from the variety of funds like equity funds, fixed income funds, money market funds or hybrid funds. The fund manager then trades the pooled assets to provide the investors with the highest returns on their investments.

So now that you know all the answers about the essentials of Mutual Funds start investing!

Be fruitful and Multiply your investments!