What is mutual fund and how does it works?

You might have heard about Mutual Funds in an advertisement. 
 Have you ever thought about why 'Mutual Funds Sahi Hai'?  If not, so let's explain it in great detail.

What are Mutual Funds?

A mutual fund is nothing but a collection of stocks that is managed by a professional Fund Manager on your behalf.

So, your task is just to invest your money through any AMC website/app.

Asset Management Companies(AMC) are the ones who manage your money by appointing a Fund Manager. He/She decides how many stocks to buy/sell, etc. 

Just like in the stock market you have a share price for each company, in mutual funds we have units known as NAV(Net Asset Value).

Why choose Mutual Funds?

Mutual Funds have plenty of advantages.

1.)Liquidity: You can withdraw your money at any time, unlike Fixed Deposits by paying a small fee(mostly 1-2% of your returns) known as exit load.

2.)Diversification: It is a technique of diversifying your investment across various sectors. It helps in reducing the risk in a portfolio

3.)Higher Returns: Unlike FDs which give you around 5-7% returns with a lock-in period, mutual funds give easily around 8-15% returns and with no lock-in period.

4.)Tax Benefits: Investors can claim a tax deduction of up to ₹1.5 lakh under section 80C of the Income Tax Act. These tax benefits are only applicable for a specific type of mutual fund known as ELSS funds.

5.)Easy Investment Methods: You can invest in mutual funds either through Systematic Investment Plans(SIPs) or Lumpsum.

6.)Expert Management: A fund manager continuously monitors your investment and adjust the portfolio according to conditions. It is helpful for those who do not have time or resources to conduct their research and purchase individual stocks.

Types of Mutual Funds

Mutual funds are broadly classified into 4 categories:

1.) Equity: They invest in equity(stock market). They are quite risky but provide high returns.

2.) Debt: They invest in bonds (give interest) issued by the government, banks and corporates. They are safe but provide low returns.

3.)Hybrid: They invest in both equity and bonds. They provide moderate returns and have moderate risk attached to them.

4.)Others: They invest in gold, real estate, commodities, etc. They also provide moderate returns and have moderate risk attached to them.

How to invest in mutual funds?

You can start investing in mutual funds through any AMC website/app. There are many third party apps like groww,ET money,etc. We are providing one mutual fund app link below.
Groww App

Hope you enjoyed the blog.

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