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Mutual Funds | 01 Sept 2019

All you wanted to know about Mutual Funds

What are Mutual Funds?

You would have heard about how people made money in the stock market. You may want to invest money in the stock market, but are scared to do so. In such a case, a mutual fund is the best investment option for you.

A mutual fund is a pool of money, where many investors put their money in a fund. The fund is managed by an Asset Management Company (AMC). The fund manager would be an expert who knows all about the stock market. He would use the money pooled and invest it in the stock market and also in other types of investments.

Why should you invest in Mutual Funds?

Your PPF or Fixed Deposit savings may give you a return of 8% per year. But have you considered inflation? Prices rise every year. When accounted for inflation, what you earn from your savings in PF and bank deposits are quite low. You need to earn more than inflation so you can have more money for your future. Mutual Funds help you do that. On average mutual funds give you returns of 8 to 18% per year. When you invest for a long time, you can definitely earn a lot of money.

Since the fund is managed by the expert fund manager, your risk gets reduced. The fund manager takes care of the investments for you, so you can relax and stop worrying. When you invest regularly in mutual funds, you can definitely save for your future. Whether it is for child education, retirement or any goal, you can make money from mutual funds.

Types of Mutual Funds

  1. Equity funds

Equity funds: These funds invest money in stocks, They are riskier, but give you higher returns. These are suitable for investors who are willing to take risks to earn higher returns.

Investment period suggested is more than 3 years. Typical returns are 15 to 18% based on fund type.

  1. Debt funds

These are safe investments. The investors’ money is used to buy bonds, government securities, debentures, and other such safe investments. Since risk is very less, returns also would be less. You can expect to get more returns than Bank Fixed Deposits and PPF.

Investment period suggested is 6 months or more. Typical returns are 9 to 12% based on fund type.

  1. Hybrid funds

These are a mixture of equity and debt funds. A large amount is invested in equity funds, so you can get higher returns. To balance the risk, some amount is invested in debt funds. This is suitable for those who don’t mind taking risks but also want some safety.

Investment period suggested is more than 3 years. Typical returns are 12 to 15%

  1. Money market funds/Liquid Funds

These funds invest in treasury bills, commercial papers, and deposits. They are a safer short-term investment. Once redeemed amount is deposited in bank account within 1 day. Returns are slightly more than Bank FD’s

  1. Sector funds

These funds invest in a particular business sector eg: IT. If the industry sector does well, the fund value shoots up. However, if there is a problem in the sector, you may suffer losses.

  1. Tax saver funds

These funds are meant to help you save tax. These are good alternatives to traditional tax saving schemes like PPF, NSC.

Investment period is more than 3 years. Typical returns are 15 to 18%.

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