WHAT ARE MUTUAL FUNDS?

Many individuals pooling in money for a common purpose is called a Mutual fund and the purpose here is to benefit from the capital market. You can invest in a wide range of assets, including stocks, bonds, and other securities, through mutual funds, which are professionally managed investment portfolios. By pooling your funds with those of other investors, you can take advantage of the expertise of professional fund managers who make investment choices on your behalf.

TYPES OF MUTUAL FUNDS

EQUITY MUTUAL FUNDS

Let's use an illustration to better understand:

My friend and I created a business together, and we each own 50% of the business. Now, if there is a loss, it will be split equally between the two of us, and if there is a profit, it will also be split evenly. When you invest in equity mutual funds, you purchase a set percentage of shares in a specific company. As a result, if you invest in an equity mutual fund, your profit will be based on the performance of the company or its position in the market.

DEBT MUTUAL FUNDS

When you invest in a debt mutual fund, you are lending a loan to the business in exchange for the guarantee of a particular rate of return. In debt mutual funds, you don't become a partner, shareholder, or owner; rather, you just pay a debt to a company in the same manner that a bank offers you a loan. In return, you'll receive a fixed return over a predetermined time period.

 BALANCED FUNDS

In balanced funds, at least 65% of the corpus is invested in equity funds, and the remaining balance is invested in debt funds. Balanced funds generate better returns with less risk.

ADVANTAGES OF INVESTING IN MUTUAL FUNDS

1. DIVERSIFICATION -

The main benefit of diversifying your investments is reduced risk. By investing in a variety of mutual funds, the risk is also spread out. If one fund underperforms, the other mutual funds can balance it out. Asset classes can fluctuate in value over short periods of time. Asset allocation is crucial because it lowers the danger of becoming overexposed to any one asset class by diversifying among them, including gold, debt, and equity. Investors are unable to predict if an asset class will experience a high or a low. Therefore, investing in a single asset based on its previous success is risky because it may change in the future.

2.LIQUIDITY-

Liquidity refers to how easily an investment can be bought or sold. The term "liquidity" describes how simple it is to buy or sell an investment. Your capacity to exchange an asset for cash is described by liquidity. This aspect of an investment is crucial, just like profits and risk.

Aside from liquid money, mutual funds also provide additional short-term funds. Although very liquid, liquid funds offer returns that are essentially identical to those of one-year fixed-rate investments. Within 24 hours, your investment might be turned into cash. If a person seeks profits and liquidity, this product is fantastic.

Mutual funds also offer liquid funds and other short-term funds. A liquid fund gives you almost equivalent returns to a one-year FD but is a highly liquid investment. Your investment can be converted into cash within 24 hours. It's a great product if somebody wants returns and liquidity.

3. PROFESSIONAL FUND MANAGEMENT-

A fund manager is a professional who monitors the investment activities of a Mutual fund. The fund Manager makes the decisions about when to buy and sell these securities. He manages the overall portfolio of the fund. A fund manager charges a fee for managing the investment. This fee is typically small compared to the benefits of investing in a well-managed mutual fund.

4. TAX EFFICIENT RETURNS-

Tax savings are one of the most significant advantages of investing in mutual funds. You can benefit from tax advantages associated with investing in various fund types, including equity mutual funds, debt mutual funds, and hybrid mutual funds.

WHAT ARE TAX SAVING MUTUAL FUNDS?

Tax saving Mutual funds, also known as ELSS, are Mutual fund investment schemes that help you save income tax. You can reduce your income tax by investing in tax-saving mutual funds. Investing in Mutual funds offers several tax benefits, which can help you save money on your taxes and increase your returns from investment. ELSS has generated inflation-adjusted returns over the long term. ELSS funds offer the option of lump-sum investment or SIP, making them accessible to investors with different investment horizons.

5. INFLATION BEATING RETURNS IN MUTUAL FUNDS-

Saving money preserves your purchasing power but does not increase your capital. Taking a little bit more risk when investing pays off in the form of real money growth that protects purchasing power and outperforms inflation. You should invest in equity mutual funds to generate returns that outperform inflation. These mutual funds have a tendency to be volatile in the short term but have generated higher inflation-adjusted returns over the long term.

CONCLUSION

 When you save, your money remains the same; but when you invest your money grows.        

BASIC RULES OF INVESTING:

1.Don't invest in anything that you don't fully comprehend, Take your time to research about it.       

2.Stay in the game and invest consistently.

3.Invest for the long term; do not consider it a get rich quick scheme.               

4.Never put all your eggs in one basket. Diversify your portfolio.