What Is A Mutual Fund?
Mutual funds pool money from several investors to purchase securities.
The fund is handled by a fund manager who doubles up as a stock market expert - someone who knows where to invest and what to look out for in a stock.
MFs: How Do They Work?
Money is collected from a group of investors and invested together.
These investments can be theme-based: for eg, MFs investing in only large-cap/mid-cap stocks, or sector-based MFs, which may invest in a certain sector infrastructure/FMCG.
MFs: Generating Returns
The fund manager is a financial markets and investments expert and does thorough research and analysis before investing
These investments are indirect - either invested in stocks or in other instruments like bonds and money market instruments.
These funds invest in equities, or directly in the stock market.
They can be classified on the basis of the type of stock - large-cap, small-cap - or on the basis of the sector/industry, like pharma, hospitality, telecom etc.
If you are a conservative investor, then you can invest in debt instruments through debt MFs, where the risk factors are much less.
For debt MFs, classifications run along the lines of the lending time period and quality of the borrower.
As the name suggests, these MFs invest in both equity and debt.
They are further split or classified based on the weightage of the investment - how much goes into equity vs how much is invested in debt.
MFs: The Benefits
MFs are a sound investment tool. Not only are they tax-friendly with good long-term returns, they are also a safe bet since they are regulated by SEBI and offer transparency.
There are thousands to choose from - so why not get started today?
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.