Categories: Mutual Funds

What are Mutual Funds?

Many of us hear the words “mutual funds”, the first few things that would come to my mind will be the spontaneous message at the end of their advertisements ”Mutual Funds are subjected to market risks. Please read all scheme-related documents carefully”, or the news of the scams that happened in the industry. But what do we really know about Mutual Funds? The textbooks say that mutual funds are the collection of savings taken from various investors and managed by a professional fund manager who deciphers the appropriate channel to invest it and generate high returns.
Did you get it? If you didn’t, don’t worry, we won’t judge you, because that was a smarty-pants answer! Here’s why I understand from what exactly is Mutual Funds and how they work.

What are Mutual Funds?

Each person has a desire to get loads of profit but at the same time do not want the risk of losing anything. Makes sense! That’s human nature.

Imagine you have a bunch of seeds which are sitting on the shelf for a long time. You have no idea about gardening, hence you do not know how exactly to use them. Now consider, there is a farmer who borrows the seeds from you. He says, he borrows seeds from many other people and sows them together. In return, he gives you back a handsome profit once the harvest is done. Now that’s pretty much like a mutual fund scheme. The seeds are the stagnant funds you save up. You give it to the Mutual fund company who collects money from many other people. Mutual funds are like a whole plate of investments taken from people who want to put their idle money to work.

Who is a Fund Manager?

The fund manager is the farmer who knows exactly what he is doing. So he decides the best season in the market to plant your money on different grounds like equity, debt, etc. After planting your money in such investments he must continue to monitor and take care of the growth of your money. He studies the market and ensures the money is safe. When the harvest time comes, you reap the principal and profits of your investment.

Don’t you have to be an expert to invest?

Not everyone needs to be a writer to understand what the book means. In the same way, you don’t necessarily need a degree in finance to get your bearings in the market. Not all those who trade in the market are Warren Buffet or Azim Premji. But, maybe you can ask experts to use your investment to trade or invest on your behalf. And that is what Mutual Funds are about.

Are Mutual Funds safe?

When it comes to money it is natural to ask this question. Every fund available is different in terms of risk you bear and the returns you could earn. Based on your choice, the fund manager will invest in the ideal funds. Now given the other investments like FDs have retained the faith of safety in the minds of Indian investors, and the quick-money schemes that promised undelivered high returns, Mutual Funds are not considered the “safe” investment option. However, that is not true. While no investment is 100% risk-free, safety with Mutual Funds is assured as no one will steal your money. How come? Mutual Funds are strictly supervised by regulatory agencies like SEBI and AMFI. Mutual Funds are as safe as any bank that holds a Fixed Deposit.

Being old fashioned, our parents would always prefer the money to stay in a fixed deposit, but when you give a try through an app like Fisdom , you will find it simple and safe to use with the SEBI registered investment Advisor (INA200005323).