What is mutual fund?
In this post, I will educate you regarding mutual funds.
What are mutual funds? How to invest in it? All the necessary information
regarding it, being a common man or a beginner investor, all the information
you will get in this post.
Friends, every month when your salary is credited then you
keep some part of that salary as savings. You keep some money for your later
use, maybe for an emergency or if you want to be the house or car and you save
for that. so what are the ways to save? One simple way is that you keep your
salary as it is in the bank and it gets collected. It's a very bad way friends
because such money loses their value Inflation is increasing in our country and
due to that the price of the commodities is increasing too.
Type of investment:-
So, the value of your money keeps decreasing every year by
4-5% according to the inflation rate. People invest the money so that they
don't lose their value kept just lying. There are different places to invest
in. Our country has mainly 4 places for investment.
- Savings account,
- FD or Fixed Deposit,
- Gold or jewelry, People buy gold or jewelry with their money
- Real estate, People buy properties, or land, or house.
Some people who want to take more risks also invest in the
stock market which is another way to invest your money. Every Investment has 3
things,
- Return,
- risk and
- time.
Return means how much percent of profit are you earning
through the investment, this is normally seen in percentage. if our inflation
rate is 4% then you should see that your profit return is more than at least 4
% Otherwise there is no point of investment if you have put your money and the
value didn't increase. because the inflation rate is also increasing Risk means
how risky it is to invest, what is the chance of losing all your money in that
investment.
What are the chance of going in loss after investing there
and time means for how long are you investing. so the basic risk here is that
if the time is more, the risk is more then the returns will also be more. If you
want more return percentage on your investment then you will have to take more
risk and should invest for a longer period Saving accounts has the minimum risk
and there is no restriction too.
You can save or take the money out at any time. But the return
we get here is also very less, only 4% whereas our inflation rate in the last
few years has been 4-5%. A fixed deposit is also a less risky option but it has
a time limit before that we can't take the money out. hence the return is also
a bit more, somewhat 7-8% Gold and jewelry these days have a significant risk,
their prices fluctuate a lot.
If you are going to see this history then you will know that
until 2012 the prices were consistently increasing If you would have invested
before 2012 then you would have got a good return here. But after 2012 there
have been a lot of ups and down but they have maintained a level, hence there's
not a much profit.
Investment in the properties and real investment has low to
moderate risk. I would say You can see India's housing prices in the last few
years. It has come up and down a lot. In the quarter or March 2011, it has
touched the return rates of 30% and in March 2018 latest quarter then it gives
just 5% return rates. One of the disadvantages of investing in housing is that
it needs a lot of capital, you need to have lacs and crores of rupees to
invest. So this is a disadvantage.
share market investment:-
You might have heard about stock market friends, you can get
a lot of returns here but also loss. The risk of investing in the stock market
depends on the stock where you are investing. You need to have a good knowledge
of the performances of the stock and how does the stock market work. you
shouldn't be investing here if you don't have this knowledge.
So these are a few main types of investments that I have
told you but there are some other types too. like Government bonds, corporate
bonds, we have crypto currency too these days, people also invest in bitcoins.
A piece of general well-known advice is that friends you should never invest
your money only in one place. You should invest in different places so that if
there's any crash then you will not have to bear the overall loss. It's a very
less chance of everything crashing altogether like, gold, properties, and even
stock market.
As this happens were rarely Chances are that if one thing
crashes then you can get profit from the other. This is called diversification,
you have to invest in different places. Mutual funds are a special kind of
investment through which you can invest in different types together. you can do
a diversifies investment by investing in one place.
Asset Management Company starts mutual funds. You give your
money to Asset Management Company and many people like you do so. That company
invests all the money collectively in different places. They have appointed
experts and with their suggestion, they invest the money. They invest money at
different places and the return rate they get collectively from these different
places out of that some small percent of 1-2% is kept as a profit by the Asset
company and the rest you get back as per that return rate.
HDFC, HSBC, ICICI, Aditya Birla, Reliance, TATA, these are
the few examples of companies and banks who have started their own asset
management company. All companies start different kinds of mutual funds in
large numbers. For example, ICICI has started more than 1200 mutual funds. So
how risky is your mutual funds and what is the return depends on the mutual
funds that you are investing in.
Mutual funds can give a return rate of 4% and also of more
than 30% too. It can be of zero risks and also of high risk too. Because all
this depends on where the asset management company is investing your money. If
that company is investing in stocks then it will be riskier and you will get
more returns and if it's investing in the government bonds then it will be less
risky.
Types of mutual funds:-
Different types of Mutual funds depend based on the
investment done by AMC people. We can divide this into the 3 categories:
- Equity mutual funds,
- Debt Mutual Funds and
- Hybrid Mutual funds
In Equity Mutual Funds, your money will be invested in the
stock market. So naturally in this type of Mutual funds generally the risk is
more and also the return. In the stock market on which kind of company are you
investing, if it's a big company then it's called Large Cap Equity Funds. If
it's a small company then it's called Small-cap and in the same way Mid Cap
equity Funds. Big company doesn't have many risks as compared to the smaller
ones but big companies won't have growth rate as high as it can be for the
smaller companies. So risk and return both are less in the big companies.
ICICI prudential blue-chip fund is an example of a large-cap
equity fund. If you invest here for a year then after a year your expected
return is 11.3% but if you invest for 5 years then your expected return can be
19.7%. As I've told at the beginning of the post, the more time you invest in,
the more return you can expect.
we will learn more about the mutual fund in the next part.
THANK YOU.
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