Mutual funds serve as a collection of stocks of different companies that are listed on the stock market, giving investors greater exposure and the ability to diversify their investment. Managed by professional fund houses, mutual funds offer an extensive range of benefits like wealth creation, diversification, and protection from market volatility as well. However, the selection of the right mutual fund house is a necessity for more reliability and overall security. The following article explores the meaning, basics, and benefits of mutual fund investment that investors must understand for their investment journey:
What is a Mutual Fund?
A mutual fund offers an investment option for investors who wish to invest in equity but do not possess the knowledge and experience in a professional/research and picking. Managed by professional researchers and fund houses, mutual funds serve as a mix of stocks, bonds, and various other market-based securities that investors can select based on their financial goals. Mutual funds are also available in various types like large-cap, small-cap, thematic, dividend yield, etc. Investors can easily explore mutual funds based on various aspects like the net asset value, total returns, past performance, and the expense ratio for an overall sound decision-making process.
Types of Mutual Funds
Mutual funds are of various types, which have been listed below:
- Equity mutual funds – Include equity, i.e, stocks of companies which are listed on the stock market.
- Debt mutual funds – includes fixed-income securities like government securities and bonds for investment.
- Hybrid funds – combines both equity and debt-based securities for investment and balance.
- Index funds – Matching the underlying index like and as the 50 or the Sensex, index funds serve as passive investment options for investors.
- Equity linked saving scheme – The ELSS fund delivers twin benefits of exposure to equity as well as tax and deduction from the total income in a financial year.
Benefits of Mutual Funds
Diversification
With careful selection of the right fund house like UTI mutual fund, investors receive diversification benefits offering time protection from market volatility.
Professional management
What is Mutual funds offered by professional fund houses are managed by professional researchers and managers with experience and expertise.
Liquidity
Investment in open-ended mutual funds allows investors to dilute their investments even after a short period. With liquidity, investors receive easy access to immediate funds while getting returns from their investments as well.
Systematic Investment Plan
With the introduction of systematic investment plans, investors can opt for consistent investment into mutual funds to generate exponential returns through rupee cost averaging and compounding.
Transparency
Being managed by professional fund houses, mutual funds are regulated by the securities and exchange board of India. Moreover, investors receive all time access to their holdings allowing them to receive access to every bit of information like expense ratio, returns and fund performance.
Conclusion
Mutual funds serve as powerful investment solutions that investors can select for their financial and investment goals. With the potential to generate exponential wealth, professional fund management, and other extensive benefits, mutual funds are reliable investment avenues that investors can select for long-term investment. However, investors must opt for complete research and therefore, look for professional asset management companies before selecting mutual funds for investment.
