Posted On Friday, Sep 10, 2021
Financial Freedom The Mutual Fund Way…
“Mutual Fund Sahi Hai” - How often have you heard or said this phrase?
Well, if you ask us, we don’t think there is any investor who has not heard it.
However, after spending over two decades in the business of empowering investors like you, we have also learnt something else.
Not everyone is aware of what is a Mutual Fund or mutual fund investing.
It is not even surprising that the search trends on Google show big numbers for terms like “mutual funds meaning”.
Hence, it becomes obligatory for us to educate one and all alike.
So, what is a Mutual Fund?
A Mutual Fund is nothing but a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities, money market instruments, gold or gold related instruments, real estate assets and such other assets and instruments. .. Such funds and its monies are managed by qualified professional “Fund Managers”, whose core job is to allocate the fund’s assets appropriately to ensure achieving scheme investment objective and generate alpha i.e. returns for the investors.
Now the question is, how do you decide if a mutual fund is worth investing in?
You see, it all depends on the securities the Fund Manager decides to buy. Because that’s what accounts for the value of the scheme.
If you buy units of a particular mutual fund, your money is invested into a part of the portfolio the fund has invested in.
Which is completely different from when you invest shares of single stock. Units of a mutual fund scheme means your money is invested in multiple stocks. And unlike stocks, you don’t get voting rights if when you invest in Mutual Funds.
One thing that sets Mutual fund investing apart is the option to create for yourself what is called a “Mutual Fund SIP”.
When you invest in individual stocks, you invest lumpsum amount and buy shares. A mutual fund SIP creates a disciplined approach to investing.
A mutual fund SIP or simply a Systematic Investment Plan (SIP) is a facility by which you can invest a fixed amount in one or multiple mutual fund schemes.
You have the full liberty to decide the frequency of the mutual fund sip– be it monthly or quarterly. The beauty of mutual fund investing by means of a SIP is that the complete control lies in your hands. The investment amount could begin from as little as Rs 500 a month, and could be directly debited from your bank account every month as per your instructions.
The top benefits of a mutual fund sip include the ability to stay away from the task of timing markets, which someone who is not trained to do might find cumbersome. They also help to compound your returns over time and also average your costs of your mutual fund investing plan.
Now you may ask, how much should one invest in mutual funds or how should one decide on mutual fun investments when planning to invest in multiple mutual funds.
There is a very simple answer to this question which almost all companies that handle mutual fund investments for investors possess. It is called the mutual fund calculator.
As the name implies, it is just a calculator. But it helps you to know and understand how much you need to invest in mutual funds.
The whole process begins with you setting your goals.
It may be regular income, wealth creation, your child’s education, a dream home, a financially independent retirement, a luxury car... Anything!
Once you have narrowed down to your goal, you need to decide in what time frame you need to realise that goal of yours.
Based on the goal & the time frame, the mutual fund calculator simply calculates the amount you should put in mutual fund investments.
For example, you might want to get your dream home for which you will need 50lacs in the next 10 years. You will just need to enter these numbers into the mutual fund calculator and voila... You have the amount you will need to invest in mutual funds.
Now that you understand all this, you must also know the categories of mutual funds available for you to invest in. Here is a list for you:
1. Equity Funds - The largest category in the mutual fund investing space. As the name suggests, these funds invest in equity stocks based on their market capitalization.
2. Fixed-Income Funds - These funds make investments in securities such as bonds (Government & Corporate), with the core objective of generating interest income, which the investors benefit from.
3. Index Funds - These funds invest in stocks that go in line with market index such as S&P 500.
4. Hybrid Funds - As name suggests, these funds invest across asset classes with the core idea of reducing risk exposure across classes.
5. Money Market Funds - These funds invest in practically risk-free instruments like government treasury bills. The returns aren’t as great, but you are generally less risky.
6. Income Funds - These funds invest mostly in corporate and government debt bonds, with the core objective of providing a steady stream of income to investors.
7. International/Global Funds - These funds invest in assets across the globe. These are more volatile and are affected by situation and political risks attached to the country the assets belong to.
8. Exchange Traded Funds (ETF) - An exchange traded fund (ETF) is a type of fund that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same way a regular stock can be.
By now, you must be well aware of most of the aspects of mutual fund investments and how one can use a mutual fund calculator to determine how much he/she needs to invest in mutual funds.
Having said all that, one should also be aware of the evergreen warning...
Mutual fund investments are subject to market risks!
Nothing comes without risk and mutual fund investments are not different. The notion of mutual fund meaning only safe & risk free investments is not correct.
With everything being said already, you can start a Mutual Fund SIP right here.
The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.
Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.
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