Today we should comprehend what is mutual funds, how it works and what are its benefits. How mutual funds work and what its advantages What is unit, how to invest in mutual funds, and how it is considered to be a more secure investment rather than directly investing in the stock market.
Most people got afraid when they think about mutual funds or other financial jargon like this. If you look at it closely, then fearing understand the fundamentals of the mutual fund which is not really fearing. So to explain this, it is important to answer a basic question that what is mutual funds ?
What is mutual funds?
The amount deposited by a large number of investors is called a mutual fund, which is deposited into a single fund. The mutual fund manager uses their investment management skills to invest this money in various financial instruments. Mutual funds are invested in many ways, which lows their risk and give secured returns. When many investors invest in a fund together, the fund is divided into equal parts called unit.
Example of How Mutual Funds works
For example, suppose some friends want to buy a piece of land together. The price of a piece of land of hundred square yards is one lakh rupees. Now if you divide this fund into units of ten rupees then 10,000 units will be formed. Investors can buy as many units as they wish, according to their investment capacity. If you have only one thousand rupees for investment then you can buy a hundred units. In the same proportion, you too became the owner of that investment (land).
Now suppose that the value of this one lakh investment has increased to one lakh and twenty thousand after one month. Now, according to this investment, the unit price will be deducted, then the unit of ten rupees has now become twelve rupees. The investor who bought hundred units in one thousand rupees, according to the twelve rupees per unit, now his investment (100×12) has been Rs. 1200.
Based on the amount invested by you as an investor, how many units you own. Therefore, an investor can also be known as a unit holder. In addition to the other income earned from this, the increase in the value of the investment is reduced to the proportion of the expenditure, the burden and taxes, after dividing the units with the number of units divided by the investors / unit holders.
With this, you can see that an investor who can not make big investments, has the facility of investing in small units.
Apart from this, the biggest benefit of Mutual Funds is that an investor who does not have much information about the market leaves his investment in the hands of experts. These experts determine where, how and when to invest.
Mutual funds invest in many ways. The most prominent bonds and stock markets are. Apart from this, you can invest in Gold or any other commodities. There are several types of funds which are known as their investment. The main ones are Debt, Equity and Balanced Fund. The highest variety is found in equity funds. After moving forward in the Mutual Fund in Hindi, we will learn about all these in different detail. Also learn what the NAV is and how it is counted.
In recent times, mutual funds have emerged as an investment option and more and more people are investing in it. The main reason for this is that investing in mutual funds is easy and investing in mutual funds through SIP is becoming more popular choice. Mutual funds are a very good option for investing where interest in working banks is happening. If invested for a long time, then it can be the solution to get the highest return on investment.
Conclusion : I hope I covered all information about mutual funds. If I missed anything please let me know in comments. You may also like What is Share market and how it works