A Beginner's Guide to Mutual Fund - Step By Step - Fast Blog News

A Beginner's Guide to Mutual Fund - Step By Step

Today we will learn about mutual funds.

 What is a mutual fund? mutual fund investment, mutual fund vs index fund, Basically all the necessary information about it.

 Be it a common man or an early investor, all the information will be given to you in this post.

 Let's start.

 Friends, every month when your salary is credited, then you keep some part of that salary as a savings. You keep some money for your later use, perhaps for an emergency or if you want to be home, or a car, and you save for it.



Mutual Fund - Complete Information

1. What are the ways to save your money?
2. What are the things to be kept in mind while investing?
3. Should one invest in the stock market?  
4. What is a mutual fund?
5. How to know how risky mutual funds are?
6. How many types of mutual funds?    
         1. Equity Mutual Fund
         2. Debt Mutual Fund
         3. Hybrid Mutual Fund
7. Important Tips for Investing in Mutual Funds
8. Conclusion


Before knowing about mutual funds, let us know that an ordinary person saves his money and he invests. And what things should be kept in mind to invest.

1. What are the ways to save your money?

 If you do this to anyone in the question, their answers will be almost the same - a simple way is to keep your salary with you because it is in the bank and it gets collected.

 This is a very bad way, friends, because such money loses their value. Inflation is increasing in our country and due to this the price of goods is increasing. So, the value of your money keeps decreasing by 4-5% every year according to the rate of inflation.

 People invest money so that they do not lose their money. Rather, earn more profit from it.

 There are different places to invest. There are mainly 4 places for investment in our country.

1. Savings Account
2. FD or Fixed Deposit
3. Gold or Jewelery - People buy gold or jewelery with their money
4. Real Estate - People buy property, or land or houses.

 Some people who want to take more risk invest in the stock market which is another way to invest your money.


2. What are the things to be kept in mind while investing?

Every investment consists of 3 things - Return, Risk and Time.

Return

Return means how much profit you are making through investing, it is usually seen in percentage. If our inflation rate is 4% then you should see that your profit return is at least 4% otherwise if you have your own money then the investment makes no sense and the value has not increased.

Because the rate of inflation is also increasing.

Risk

Risk means how risky it is to invest, what is the chance of losing all your money in that investment. What is the possibility of going into loss after investing there.

Time

Time means how much time you are investing for. So the basic risk here is that if the time is high, the risk is high then the returns will also be high. If you want a higher return percentage on your investment, then you have to take more risk and invest for long term.

Savings accounts have minimal risk and there are no restrictions. You can save or withdraw money at any time. But the returns we get here are also very low, only 4% whereas our inflation rate has been 4-5% in the last few years.

Fixed deposits are also a less risky option, but have a deadline so that we cannot withdraw money. Hence the returns are also slightly higher, somewhat 7-8%

There is a lot of risk of gold and jewelery these days, their prices fluctuate a lot.

If you are going to see this history, then you will know that till 2012, prices were continuously increasing. If you had invested before 2012, you would have got good returns here. But after 2012 there have been many ups and downs but they have maintained a level, so there is not much profit.

There is moderate to low risk of investing in properties and real investment. You can see India's housing prices over the years. Has gone up and down a lot. It has touched a 30% return rate in March 2011 and in the latest quarter in March 2018 it only gives a 5% return rate.

One disadvantage in investing in housing is that it requires a lot of capital, you need lakhs and crores of rupees to invest.

So this is a disadvantage.


3. Should one invest in the stock market?

You must have heard about the friends of the stock market, here you can get many returns but also losses. The risk of investing in the stock market depends on the share where you are investing.

You must have a good knowledge of the performance of the stock and how the stock market basically works. If you do not have this knowledge then you should not invest here.

So these are some of the main types of investments that I have told you but there are some other types as well.

Like government bonds, corporate bonds, we also have crypto currency these days, people also invest in bitcoins.

A well-known advice is that friends you should never invest your money in one place. You should invest in different places so that if there is an accident then you do not have to bear much loss.

All this is very unlikely such as gold, properties and even the stock market.

As it used to be, there is rarely a possibility that if one thing crashes, you can benefit from another. This is called diversification, you have to invest in different places.

Now let's talk -


4. What is a Mutual Fund?

Mutual fund is a special type of investment through which you can invest on different types simultaneously. You can make a diversified investment by investing in one place. Asst Management Company starts a mutual fund. Basically you pay your money to an asset management company and many people like you do it.

The company collectively invests all the money at various locations. They have appointed experts and with their suggestions they invest the money. They invest money in different places and the return rate they collect collectively from these different places. Of this, a small percentage of 1-2% is retained by the asset company as profit and the rest is returned to you according to that return rate.

HDFC, ICICI, Aditya Birla, Reliance, Tata, these are some examples of companies and banks that have started their own largest management company. All companies start a large number of different types of mutual funds.

For example ICICI has started more than 1200 mutual funds.


5. How to know how risky mutual funds are?

How risky is your mutual fund and what is the return, it depends on the mutual fund in which you are investing. Mutual funds can offer a return rate of 4% and even more than 30%. It can be of zero risk and also of high risk. Because it all depends on where the asset management company is investing your money.

If that company is investing on stock then it will be more risky and you will get more returns and it will be less risky if it is investing in government bonds.


6. How Many Types of Mutual Funds?

Different types of mutual funds depend on the investment made by AMC people.

We can divide it into 3 categories:

1. Equity Mutual Fund
2. Debt Mutual Fund
3. Hybrid Mutual Fund


1. Equity Mutual Fund

In equity mutual funds, your money will be invested in the stock market. So naturally in this type of mutual fund, the risk is high and also the returns.

Large Cap Equity

What kind of company you are investing in the stock market, if it is a large company then it is called large cap equity fund. 

Small Cap Equity Fund

If it is a small company, it is called a small cap equity fund.

Mid Cap Equity Fund

and in the same way a mid cap equity fund.

Equity Linked Saving Scheme

It is also called ELSS, it is a special type of equity fund where you can save our tax. You can save tax on this benefit. The fund manager deliberately invests in places where there are high returns as well as high risk.

The IDFC tax benefit is an example of an ELSS fund with a return of around 11.3% within a year.

If you want to see the details of tax, then with the help of various apps, you will also get it. How much you can save and how much you will have to pay. You can see this details for all mutual funds and also find out more information like how much tax you have to pay.

Sector Mutual Fund

Especially companies that invest here are related to big sector like agriculture sector. All companies which are under agriculture sector are invested on them.

 A logistic or transport sector, so there. An example of this is the UTI Transport and Logistics Fund.

Therefore investment is made in that area.

These funds are more risky because all investments are made in one sector, so if the sector is declining, then everything depends on it.

Index Fund

The last type of equity fund that I want to tell you is an index fund.

Index funds are passively managed funds that no agent of AMC is looking at where to invest money here. These are passively managed according to market rate fluctuations and they go up and down a lot. This varies depending on the Sensex and Nifty prices.


2. Debt Mutual Fund

Now let's look at the second category of mutual fund friends, that is debt mutual funds.

These are mutual funds that are invested in debt instruments. Debt instruments are bonds, debentures, certificates of deposits. If I keep telling you all this, then the video will get longer, I will tell you what the bonds are. If the government needs money for some time and it is not getting it through the budget then the government borrows money from the people. And take loans from people. It is called bandha

You can invest here, give it to the government and the government will return the money to you after a certain interest.

 Now there are several types of debt mutual funds, let's see:

Liquid Fund

 Liquid funds are mutual funds that can be converted into cash easily and quickly. Meaning this thing can be converted into cash in a day or two. But its risk is very low, so low that you can basically consider it as a savings account option.

Gilt Fund

These are funds where investments are made on bonds issued by the government. So it technically has zero risk because it is not possible for the government not to return your money. Most interest rates may fluctuate.

Fixed Maturity

It is a fixed maturity plan and can be considered as an option for fixed deposits, FD friends. Because it has very little risk like FD and it is done for a fixed time. Investments are made here for a specific time and you cannot take money before that. So these are some of the main types of debt funds such as junk bond schemes.

3. Hybrid Mutual Fund

The third category of mutual funds is hybrid mutual funds, basically it is a mix of debt and equity mutual funds.

Some people want to invest in the stock market but do not want to invest all the money there. And invest some amount in debt instruments as well. So hybrid mutual funds are for them. If most of the money is invested in debt funds then it will be called Balanced Saving Fund.

Approximate ratio is 70:30.

This means that 70% of your money is in low-risk debt funds and 30% in equity funds. And if it is
the other way around, 70% equity fund has high risk, then it is called as balanced profit fund.

And hybrid mutual funds also have different types such as arbitrage funds.

Friends, I think you got a lot of information and knowledge about mutual funds.

Now I leave it to you, and you research yourself on mutual funds and which is better for you. Then choose.


7. Important Tips for Investing in Mutual Funds

A large company does not have much risk compared to small companies, but large companies will not have as high a growth rate as can be for small companies. Hence, both the risk and return are low in large companies.

A lot of useful smartphone apps are available. From which we get information about mutual funds, here you have to determine every month how much amount you want to invest, for how long and you will get the expected return.

Such apps work by examining the history of mutual funds.

What has been the performance of mutual funds in the past 5-10 years, what is growth and it gives you numbers based on average growth.

It is based on the history of mutual funds. Therefore it is a very good thing to calculate the expected return of a mutual fund. But friends, keep in mind that this is an expected return and not a guaranteed return. It still depends on the market. Since mutual funds have given such performance in history, that does not mean that the same performance will happen in future.

It still depends on the stock market, so there will be risk, especially because it is an equity mutual fund and the investment is on the stock market. So don't just look at the rate of return and invest.

Professionals believe the risk is lower than the bench mark.

This means that among all other large cap equity funds, this particular fund has a lower risk rating. So it is a good point here that it is less risky than the others.

Expenditure Ration Mitra, the percentage that is the portion taken by the asset management company as their profit. Commissions originally invested on your behalf. Therefore it is lower than others which again is a good comparison.

If you look at more professionals, you will see that this return is more than the benchmark in 1 year, 3 years, 5 years. In some mutual funds, they give a return of one year more than the bench mark and less than 3 or 5 years. This means that it is better for short terms.

Look at the pros and cons and decide what is better for the short term and other things can also be compared. On the contrary, it states that the assets under management, means that the total value of the money they have put at different places by this company has crossed 15000 crores. Hence it happens that if the price crosses a particular point, then the rate of return gradually decreases.

Because the value of money is so much that it is difficult to get returns.


8. Conclusion

The biggest advantage of a mutual fund compared to other investments is that it is already diversified. Due to diversification your risk is greatly reduced. Because you are not investing in one place, if something crashes, it will not affect your money. Hence mutual funds are less risky than stock market, gold, real estate. However, the exact risk depends on the mutual fund you are investing on.

Another good advantage is that it is inexpensive, you do not have to invest a large amount. You can use SIP and invest a small amount every month. And all investments in mutual funds are done by a professional expert or a fund manager who had decided where to invest and where not.

This is again a big benefit if you do not need an expert working for you.

But friends, this mutual fund also has a disadvantage.

If you are giving it to an unknown person, you do not know how it will perform. Although he is an expert but you cannot 100% trust that an expert will be right all the time. But the biggest disadvantage that used to happen for mutual funds earlier was that agents used to charge a lot of commissions for investing in mutual funds.

Loss is no longer possible due to smart phone apps.

If you invest in any mutual fund, it is going to happen. For transparency, I want to say that you too should invest in yourself with the help of smart phone apps.

I hope friends have got a lot to know here to share this post with your friends and family and also spread knowledge with them. And also teach them about mutual fund investment. Also tell us through comments how did this post look like. Further, if you want to know the updates of our post, then subscribe us.

Thank you very much for reading our post.
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