Mutual Funds for First Time Investors
July 1, 2021Mutual funds investment might be a little confusing at the beginning but it can result in a good amount of profits. Mutual funds do not mean investing only in stock markets.
What is a mutual fund?
An amount of money is collected from the investors in the form of stocks, bonds, or some other funds which are owned by them. These investments can be made in different areas like government bonds, or stocks from large companies, or even stocks from different countries. Buying a mutual fund means you are investing in something along with other investors. You can manage your fund daily then you can even decide if you want to buy more funds or sell some of the stocks. Your money in a mutual fund will be handled by a fund manager. A fund manager is a stock market expert who can handle your money like a professional.
When you invest money in one of the mutual fund schemes then the AMS (Asset Management Company) will allot units according to the NAV of the mutual fund. When you invest money you earn a certain amount of percent every year.
What do you need to consider before investing
Risk Level
Not all funds are safe to be invested. The mutual fund investments are not guaranteed and are not insured by the government. You can also lose money when investing through your bank’s name. So always check the level of risk before investing. The performance of the funds in the past will let you know about the amount of risk.
Buying and Selling Price
If you sell your funds for more than the actual buying price then you are making a profit. This in other words is known as a capital gain. When you sell your funds for a lesser price than the original value then it will result in Capital loss.
There are three kinds of mutual funds. You need to have enough knowledge about each of them before you start investing. This classification has been made on basis of the underlying assets.
Equity Mutual Funds
These are the type of funds that are invested in the stock markets. When you invest in large companies then it is known as large-cap mutual funds. When you invest in funds of middle-sized companies then it is known as Mid cap mutual funds. And the last one is the Small Cap mutual funds which are those funds when invested in the small sized company. Mutual funds can be classified into various sectors too. When one invests in one sector then it is known as thematic or sectoral mutual funds. You can choose the size of the company, the sector according to your investment horizon, risk level, the objective of the investment, and your preference.
Debt Mutual Funds
These funds are classified based on the tenure that is being lent and the borrower’s quality. The Short duration Mutual funds are the ones having a maturity that ranges from one to three years. For high securities and a low credit risk level, you can invest in Gilt mutual funds. The money you wanted will be invested in government securities. This might be a secure way.
Hybrid Mutual Funds:
This category comprises both equity funds and debt funds. They are further categorized based on the amount of money you invest. The proportion of your investment will determine whether your funds are debt-oriented balanced or hybrid funds, or if it is an equity-oriented balanced fund.
You have several options to choose from. You can invest according to your preference. All the mutual fund investments are under the Securities and Exchange Board of India which ensures that you have transparency over your funds in the market. Mutual funds are a good option for long term benefits. Get to know about each one and start investing.
