You have taken the first step to earn money by starting a job or business. But unless you make money from money, how will you learn investment? Yes, in the early stages of life, doing a job or doing any business from which money can be earned is necessary. And as soon as your savings start increasing, you should know how to make money from those savings. Which can be useful to you in bad times. Making money from money is investment.
But the problem is that in today’s busy life, everyone is so engrossed in their jobs and businesses that they do not have enough time to have all the information about investment. And due to lack of information, everyone considers it appropriate to keep their money in savings account or FD. But the interest rate in savings account is only around 4% and in FD it reaches up to 6%. But both of these are less than the inflation rate which is 7.55%.
To earn more money than this inflation rate, some people invest in gold, some buy property and some invest in the stock market. But many people do not invest their money due to lack of information and fear. And this fear is also justified. There is definitely a risk in all investments. Now even if it is putting money in a savings account. There are many such examples when banks also close down and all the money deposited in them is lost.
The more the risk in investment, the more the profit. That means more risk, more profit and less risk, less profit. You have taken the first step to earn money by starting a job or business. But how will you learn investment unless you make money from money. Investment is done so that we do not have to work day and night for money. And when we are sick or grow old, we keep getting the required amount for our needs.
Making money from money is an art, you have to learn it. Otherwise, you will keep struggling all your life to fulfill even the smallest needs. And you will never be able to enjoy life.
But the problem is that in this busy life, it is not possible to keep information about all the companies listed in the stock market along with your work. Mutual funds have been created keeping these problems of people in mind.
Diversified investments are made in Mutual Funds. This means that your money is not invested in one place but in different places. This reduces your risk to a great extent.
The more the risk in an investment, the more the profit. This means that more the risk is more profit and less the risk is less profit. Mutual Funds may have less profit as compared to other stocks but the good thing is that your risk of loss is also less.
Mutual Funds are run by Asset Management Companies (AMC). An AMC company can run many Mutual Fund schemes. And this company does not invest your money in one place but invests it in different places in the stock market so that the risk can be reduced and good returns can be obtained.
How do mutual funds work?
Any asset management company needs to have a budget of at least Rs 500 crore to run a mutual fund. This cost vary country to country.
All the investors in a mutual fund have partial ownership rights in the fund. If the fund makes a profit, it is shared with everyone and if there is a loss, that too is shared with everyone.
Since funds are invested in different types of stocks, the dividends and bonuses received from them are also shared with everyone.
In such a situation, if a person wants to exit the mutual fund, the fund manager may have to close some holdings to complete them. And if a large number of people exit the mutual fund at the same time, the fund may incur a loss.
Why invest in mutual funds?
Easy to invest:
Any person who does not have much knowledge of the stock market can also invest in it. You will not need to read the finances of all the companies involved in the stock market. The AMC will do this work for you.
Many investment options:
The best thing about mutual funds is that you can choose any of the mutual fund schemes available in the market, keeping in mind your financial needs and risk. In which different options of returns along with risk are available.
Low fees:
To manage your fund, the AMC company charges some fees which is called mutual fund expense ratio. And this fee is divided among all the people invested in the mutual fund, due to which this expense ratio becomes even less. It is usually up to 2.5% of your investment.
Transparency:
The asset management company tells all the changes it makes in its portfolio in its declaration form every month and also tells the NAV (net asset value) or price on a daily basis.
Mutual Funds and Net Asset Value (NAV)
Compared to other shares, where the price fluctuates every minute, in Mutual Funds this happens only once a day and that too when the market is closed.
The value determined at the end of the trading session is called NAV (Net Asset Value).
The formula for calculating NAV is: Total value of the fund – Total fund liabilities (liabilities and debt) / Total number of outstanding units of the scheme.
Because to reduce the risk and to earn more profit: “diversified investments” are made. Meaning, the fund is not invested in one place but is invested in different places. This is why Mutual Funds are the first choice of rich people as well.
Mutual Fund Charges
All the expenses incurred by any asset management company for managing a mutual fund are shared with all investors in the form of expense ratio and load charges. Whatever amount you invest in a mutual fund, these charges are already deducted from your investment amount and only the remaining amount is invested. For example, if you invest Rs 100, then after deducting 2% charges, only Rs 98 is invested. So let us know about expanse ratio and load fee.
Expanse Ratio:
This is an annual fee charged by the asset management company for the expenses incurred in maintaining the mutual fund. This includes fund management fees, allocation charges, advertising costs, etc. It usually ranges from 1.20% to 2%
Load Fee:
Whenever you buy or sell shares of a mutual fund, load fee is charged from you as sales charge and commission. There are some mutual funds which do not charge load fee, they are also called no load mutual funds.
How to invest in mutual funds?
There are many ways to invest in mutual funds:
- Mutual funds can be invested through a mutual fund distributor. The distributor is selected by the asset management company. They do not charge any fee from the investor.
- You can also invest by directly visiting the AMC office. Investment can be made both online and offline.
- You can also take help from a SEBI registered investment advisor to invest in mutual funds. Since the investment advisor does not get commission from any AMC company, he can charge you his fee for investment advice.
- You can also take help from your bank to invest in mutual funds. Most banks provide this facility to their customers. This can be done both online and offline.
- And the easiest and most preferred method by investors is stock broker. Nowadays every stock broker is providing this facility very easily through their online platform/website. In these, reading the data and all the details related to mutual funds can be easily compared.
I hope you liked the information given by me. If you have any questions related to mutual funds, then definitely write it in the comments, I will try my best to answer them.