Mutual fund is collecting money from multiple investors and invest in multiple stocks. It would reduce the risk by investing the money in multiple stocks and bonds. Mutual Fund is highly regulated way of getting the money from retail investors(like us) and invests the same in a variety of different financial instruments such as stocks, bonds. In this, we would discuss mutual funds meaning with example in simple terms.
Collect Money from multiple people, invest in securities such as stocks and bonds.
Each mutual fund invests in group of portfolio based of expected returns and risk. The income earned/loss through these investments by the scheme are shared by its investors. The investment objectives specify the class of securities a Mutual Fund can invest in. Mutual Funds invest in various asset classes like equity, bonds, debentures, commercial paper and government securities. Investing for longer time in mutual funds gives better returns.
Fund manager decides the investment in mutual fund
Each mutual fund is managed by experienced financial expert called Fund managers. Fund manager is decides how to invest and diversify the collected mutual fund investment. Here fund managers shares the profit as well as loss with investors. Mutual funds are highly dominated by stock exchange. Mutual fund reduce the loss by investing in diversified portfolio. Mutual fund schemes classified as large cap, mid-cap, small cap and ELSS funds based of investment objectives. Mutual fund is the best option for long term goal planning.
For example, we invested 1000 rupees on large cap mutual fund. Fund manager invest our 1000 rupees as below, 200 rupees in Wipro, 150 rupees in HCL, 250 in ITC, 150 in Sun Pharma, 150 in SBI, 100 in Ramco Cements. After 1 year of investment each portfolio returns as below,
200 rupees in wipro => 40 rupees gain
150 rupees in HCL => 20 rupees gain
250 rupees in ITC => 5 rupees loss
150 rupees in Sun => 20 rupees gain
150 rupees in SBI => 5 rupees loss
100 rupees in Ramco => 30 rupees gain.
Overall 110 rupees gain and 10 rupees loss. Finally 1000 rupees, we gained 100 rupees as a gain in 1 year. (All numbers and gain/loss mentioned for your understanding. Fund manager actual investment and returns may vary based on his portfolio.)
“MUTUAL FUNDS ARE HIGHLY REGULATED INVESTMENT IN INDIA”
Each mutual fund scheme is managed by an Asset Management Company (AMC). AMC is a highly regulated organisation that pools money from retail investors(like us) and invests the same in a portfolio. AMC manages the portfolio by experience fund manager and collects fee from retail investor for managing the portfolio. Asset Management Company (AMC) is registered with Securities and Exchange Board of India (SEBI) as a Mutual Fund trustee An Asset Management Company (AMC) approved by SEBI manages the fund by making investments in various types of securities. The Asset Management Company is responsible for managing the investments for the various schemes operated by the mutual fund. It also undertakes activities such like advisory services, financial consulting, customer services, accounting, marketing and sales functions for the schemes of the mutual fund.
Famous AMC in india, Aditya Birla Sun Life AMC Limited, Axis Asset Management Company Ltd, DSP BlackRock Investment Managers Private Limited, HDFC Asset Management Company Limited, ICICI Prudential Asset Mgmt.Company Limited, Reliance mutual funds.
We discussed on what is AMC and how mutual fund works. Finally how we earn money in mutual fund investment.
“MUTUAL FUND INVESTMENT IS NOT GAMBLING. IT IS HIGHLY REGULATED INVESTMENT BY SEBI OF INDIA”
Mutual funds investment invested in Indian companies. For example set of companies from TCS, Wipro, L&T, Titan and 7,000 more companies. Mutual funds in not about investing our investment in foreign company or trading. It is mainly to invest in indian companies.
Mutual funds Investment invests in Indian Companies.
Fund manager shares the holding securities and allocated percentage for each securities from mutual funds. We can generate the report to know where the money invested in the market. In mutual fund, our money invested as our money. No hiding or cheating. It is best investment.
We can generate report for our investment.No hiding or Cheating.
We can withdraw our investment from mutual funds at anytime except (ELSS or close-end mutual funds). Very few are ELSS or close-end mutual funds. We can get back our invested money from mutual fund house.
Get back money from invested mutual fund at anytime as same as bank account.
At last, mutual fund is easy to start with monthly investment of 500 rupees. Every month contribute 500 rupees in mutual fund SIP and it starts growing in the indian market. With all these consideration, mutual funds investment is best in india. Next blog we will discuss how to start mutual fund investment and analysis of mutual funds. Stay tuned.:)