Hello Hiveans!
In this post , I will educate you regarding mutual funds, What is mutual funds? How to invest in it? Basically all the necessary information regarding it. Being a common man or a beginner investor, all the information you will get in this post.
Well, Let’s get started…….
Guys , every month when your salary is credited then you keep some part of that salary as savings. You keep some money for your later use, maybe for emergency or if you want to be the house, or car and you save for that. So what are the ways to save. One simple way is that you keep your salary as it is in the bank and it gets collected. According to me It’s a very bad way, because such a money loses their value, inflation is increasing in our country and due to that the price of the commodities are increasing to. So, the value of your money keeps decreasing every year by 4-5% according to the inflation rate. People invest the money so that they don’t lose their value kept just lying. There are different places to invest. Our country has mainly 4 places for investment. The commons places where most of people invest are Fixed Deposit, saving accounts, buying gold and in real estate.
Some people who wants to take more risk also invests in stock market which is another way to invest your money. Every Investment has 3 things, Return, risk and time. Return means how much percent of profit are you earning through the investment, This is normally seen in percentage. If our inflation rate is 4% then you should see that your profit return is more than atleast 4 %, Otherwise there is no point of investment if you have put your money and the value didn’t increase because the inflation rate is also increasing. Risk means how risky it is to invest, what is the chance of losing all your money in that investment. What is the chance of going in loss after investing there and time means for how long are you investing. So the basic risk here is that if the time is more, risk is more then the returns will also be more. If you want more return percentage on your investment then you will have to take more risk and should invest for a longer period.
Mutual funds is a special kind of investment through which you can invest on different types together. You can do a diversifies investment by investing at one place. Asst Management Company starts mutual funds. Basically you give your money to Asset Management Company and many people like you do so. That company invest all the money collectively at different places, they have appointed experts and with their suggestion they invest the money. They invest money at different places and the return rate they get collectively from these different places. All the companies starts different kinds of mutual funds in large numbers. So how risky is your mutual funds and what is the return depends on the mutual funds that you are investing in. Mutual funds can give the return rate of 4% and also of more than 30% too. It can be of zero risk and also of high risk to because all this depends on where the asset management company is investing your money. If that company is investing on stocks then it will be more risky and you will get more returns and if it’s investing in the government bonds then it will be less risky. Different types of Mutual funds depends on the basis of the investment done by AMC people. We can divide this in the 3 categories: Equity mutual funds, Debt Mutual Funds and Hybrid Mutual funds.
In Equity Mutual Funds, your money will be invested in the stock market. So naturally in this type of Mutual funds generally the risk is more and also the return. In the stock market on which kind of company are you investing, if it’s a big company then it’s called as Large Cap Equity Funds. If it’s a small company then it’s called as Small cap and in the same way Mid Cap equity Funds. Big company doesn’t have much risk as compared to the smaller ones but big companies won’t have growth rate as high as it can be for the smaller companies, so risk and return both are less in the big companies.
Next type is Equity Linked Saving scheme that is ELSS, this is a special type of Equity fund where you can save our tax. All the companies which are under the agriculture sector, they are invested on. So the investment is done in that sector. These funds are more risky, since all the investment is done in one sector so if the sector is going down everything depends on that.
The last type of equity fund that I would want to tell you is Index fund. Index Funds are passively Managed funds that is no agent of AMC is looking at where to invest the money here, these are passively managed that is according to the market’s rate’s up and downs they too go up and down. Now let’s look at the second category of the mutual funds friends, that is Debt Mutual Funds. These are those mutual funds which are invested on the debt instruments. Debts instruments are bonds, debenture, certificates of deposits now these things are exactly what you can read it for yourselves. Sometime if the Government needs money and it’s not getting that through the budget then the government borrows money from the people. And take loans from the people. It is called as bonds. You can invest here, give to the government and the government will return you the money after a fixed interest. Now debt mutual funds are of various kinds, let’s first talk about liquid funds. Liquid funds are those mutual funds which can be easily and quickly converted in to cash like in this platform on ecency we can withdrawl the liquid hive. Liquid means that actually, It’s not the liquid to drink. In economics liquid is something which can be easily converted into cash. It has a very low risk, such low that you can basically consider this as an alternative to savings account. Assest liquid fund is one such example where you will get the return of 7.1% in a year.
Next type is Fixed Maturity plans and this can be considered as an alternative to Fixed deposits. Because it has very low risk just like FD and it is done for a fixed time. For a specific time investment is done here and you can’t take the money before that.So these are the few main types of Debt funds there are more like Junk Bond scheme. The third category of mutual funds is Hybrid Mutual Funds friends, Basically it’s a mixture of a debt and equity mutual funds. Some people wants to invest in the stock market but don’t want to invest all the money there and also invest some amount in the Debt instruments., so hybrid mutual funds are for them. If most of the money is invested in a Debt fund then it will be called as the Balanced savings Funds, approximately the ratio is 70:30. That means 70% of your money is at the low risk debt funds and 30% is in the equity funds. And if it’s the other way, 70% is in the equity funds at the higher risk, then it is called as a balanced advantage fund.
Final Words :
Now I leave it to you, go ahead and research yourself on further kinds of mutual funds and which one is better for you. The biggest advantage of mutual funds in comparison to other investment is that it is already diversified. Your risk gets very low due to diversification because you are not investing at one place so if one thing crashes so it won’t affect your money. So in comparison to the stock market, gold, real estate, mutual funds are less risky, however the exact risk depends on the mutual fund that you are investing on.