What is Mutual Fund?
A mutual fund is a collection of stocks, bonds, or other securities owned by a group of investors and managed by a professional investment company. For an individual investor to have a diversified portfolio is difficult. But you can approach to mutual fund advisor and can invest into shares. Mutual funds have become very popular since they make individual investors invest in equity and debt securities easy.
When investors invest a particular amount of mutual funds, he becomes the unit holder of corresponding units. In turn, mutual funds invest unit holder’s money in stocks, bonds or other securities that earn interest or dividend. This money is distributed to unit holders.
If the fund gets money by selling some stocks at a higher price the unit holders also are liable to get capital gains. A mutual fund is quite simply a collection of stocks, bonds, or other securities owned by a group of investors and managed by a professional investment company. Thus the mutual funds are not the depositing instrument that has the guarantee of getting a certain amount but it is like any other securities where the investor can have capital gains or loss.
WHY TO INVEST IN MUTUAL FUND? (Mutual Fund Sai Hai)
Mutual funds are professionally managed by fund managers, whose every day job is to track the markets and manage investments.
“Don’t put all your eggs in one basket”. This is the premise of diversification. It means spreading your investments across asset classes and stocks, to reduce your risk.
Mutual funds provide the right avenue for investing in a variety of market-linked instruments, which have time and again delivered superior returns
Mutual funds, on the other hand, broadly come with less, if not no, lock-in periods. Most funds do not have a lock-in period and give you the flexibility to redeem your money when you need it.
And finally, investing in mutual funds is now a piece of cake. The whole process is offered online by many players in the industry. Starting a SIP or making an investment can be done in a matter of few clicks.
Habits are hard to break. Which is why we are advised to inculcate good habits. And what better habit could there be, than investing for your secure future?
Importance of Asset Allocation.
First of all, we must know What Asset Allocation Is? It is an investment portfolio technique which helps in diversification by investing in different asset classes such as cash, bonds, stocks etc. thus ensuring to balance risk in case one asset class increases while other decreases.
FIVE THINGS WHICH ARE IMPORTANT IN RELATION TO ASSET ALLOCATION ARE AS FOLLOW
1) Risk vs. Return
Every investor must take into aspect the concept of risk-return trade-off which basically means that potential return increases with an increase in risk. According to this risk-return trade-off principle, invested money can give higher profits, only if the investor is willing to accept that losses too can happen and they are a part of the market.
2) Don’t Rely Solely on Financial Software or Planner Sheets
Though the financial planning software and survey sheets designed by financial advisors can be beneficial, one must not rely solely on that as some of these worksheets are based on a set of simple questions that don’t match with every individual financial goal. Also, some of the surveys don’t take into account other important information such as whether or not you are a parent, retiree, spouse etc. So investors must be extra cautious and must do thorough research before relying on any such surveys and software.
3) Determine Your Long and Short Term Goals
An asset allocation plan must be prepared considering both the long term and short term goals of an investor in mind. It must thus be prepared according to the investors’ age, his/her risk-taking ability and thus every investor long and short-term goal plan will be different and must be taken into account.
4) Time is Your Best Friend
It is always said that investing early helps you take advantage of time value of money and compounding. Hence, it is advised by the financial planners to invest for long-term whether in mutual funds or direct in stock markets as in long run one will definitely higher returns.
5) Keep a Check on Your Portfolio
Once you have determined the right mix of stocks, bonds, and other investments, then it is the time to implement it. One needs to know what all is included in your current portfolio and you must keep a check on it and must remain in touch with your financial planner so that you can let him know what changes you need to make in your portfolio from time to time according to the conditions in the market.
How to Invest In Mutual Fund
First, let us understand What Exactly Mutual Funds Are. These are pools of funds which are collected from investors and managed by an asset management company on their behalf for investing in different instruments such as stocks, bonds, Govt. securities and other asset classes with a hope of providing better returns to investors by diversifying their risk by investing in different asset classes.
Following are the people which can invest in mutual funds:-