Mutual Funds Sahi Hai!
Mutual funds is a company that collects money from a pool of investors and invests in stocks, debt, bonds, etc. This company is called an Asset Management Company (AMC).
You should invest in a Mutual Fund when you don’t have the expertise or enthusiasm to understand the market.
A Mutual Fund Company does the heavy lifting of understanding the nuances of markets and invests on your behalf. They charge a small commission to do this.
This commission that the Mutual Fund company charges from its investors is called Expense Ratio.
The commission includes
Management fees
Operating costs
Advertising costs
It ranges typically between 1-3%.
Categories of Mutual Funds based on the investment strategy
Equity Mutual Funds
Invests in Stock Market
High Risk
They usually give High Returns if held for longer duration
Performance is dependent on market conditions
Debt Mutual Funds
Invests in fixed income instruments like corporate bonds, commercial papers, government securities
Low Risk, they are not impacted by changes in the market
Low Returns when compared to Equity.
Not impacted by market fluctuations
Hybrid Mutual Funds
Invests in a combination of Debt & EquityÂ
Moderate Risk
Moderate Returns due to a mix of debt and equity
Solution Oriented Mutual Funds
Designed to achieve a specific goal like retirement or child’s education
Other Mutual Funds
Broad umbrella for other types of funds like Index Fund which directly invests in Index like SENSEX or NIFTY
Investing in a combination of these mutual funds will ensure you beat inflation in the long term. Let me know in the comments below if you invest in Mutual Funds.
Stay tuned to know more about Mutual Funds, how to invest in them and which ones are the best for you!