Invest in Mutual Funds and manage your funds
If you are planning to invest your money where you want to gain profits and also have minimum risks then Mutual Funds are the right solution for you. You can tax benefits and also appreciate your some which could be of any amount. It depends on you how big or small amount of investment you want to make. It is any day a better option than just keeping it at home or putting in your bank account. Mutual Funds are the best option that is selling nowadays. It is the most selling investment. Mostly people invest all the money that they have saved in a bank account or in their lockers at home and office. Not everyone takes the time to understand the investment options completely but you should not repeat the same mistake. In mutual funds your money is safe and is managed by professionals who understand your financial needs completely. You should understand and assess all the options and also why investing in Mutual Funds is a good option.
Understanding Mutual Funds
Mutual Funds are a larger bucket of funds where many investors pool in their money. The money is put together as a larger sum. Investing your money in mutual funds is safe and comparatively less risky. It is better than investing in stocks as there is a lot of risk involved and further mutual funds are an easier and organized way for investing. Investors have the leverage to sell their part if they wish.
You get assistance from a professional fund manager who helps you with all your financial requirements and creates a portfolio for your investments accordingly. The manager invests your money in different instruments of the market.
Everyone who invests in the mutual funds are shareholders in the complete fund and do not own it completely. All the investors can save as small or as big money as they want and can benefit from the mutual fund. There is a lot of flexibility that the investors enjoy in mutual funds.
Hence small amount gives you fruits of big money. All the shareholders are responsible in equality and share the profits and losses according to their share.
You can diversify your investments by having a varied portfolio. You can save in many securities by just investing small amount of money in each. Hence the risk is minimized and you are safe against all the fluctuations of the investments.
There are various types of mutual funds with different goals as well. The objective of investing in any mutual fund is the goal of every funds manger. It is his duty to decide the right stocks and bonds to invest in the right portfolio.
For example in a typical growth stock fund the objective is to attain long- term capital gains and meeting financial needs like benefits for retirement or for children’s education. Differentiating on the basis of objectives there are 5 types of mutual funds:
The mutual funds for aggressive growth will mean that you buy shares which will grow rapidly and your investment value will increase. Whereas this type of investment is more risky as if the prices can increase rapidly, it can also fall radically during the downfall of the economy. These sort of investments are good for investors who can at least freeze their money for at least five years. In this investment you need to play with risks involved and conservation of funds is not possible completely.
Even if the investors are looking for aggressive growth and have good returns, the portfolio of investment should have all types of companies. The funds should be invested in big shot names as well as emerging companies. This is a complete portfolio. The fund manager should invest in companies who grow with the profits earned rather than paying out. This should be a long term strategy and a complete study from the past so that you can benefit to the maximum. Though there is considerable risk involved and the investors need to be patient.
There can also be a combination of goals that can be achieved and is known as balanced funds. Here the investors get ongoing benefits and yet there is a chance for the value of the investment to be appreciated. Buying stocks and bonds help to produce income in the present and also the fruits of long term investments can be reaped. There are multiple benefits that can be achieved from this sort of investment. The equity part of the investment generates incomes while the fixed income act as securities for all types of times. Hence you just need to assess all the risks involved and invest comfortably with the achievement of the objective.
The next type of funds are income funds. Here the investors invest in fixed income securities. Hence a regular income can be generated. For retirees this type of income can be really beneficial as they can benefit with some regular income every month. Every fund manager should put the money in debentures and fixed company securities for these type of investments. A regular income can be generated with these investments. The interest of the funds can go up or down and the prices of these shares will move in direction. Hence the interest rate is also very sensitive and can keep on changing quit fast.
The next type of mutual funds which are ideal for cautious investors are money market mutual funds. Here in this type of investment, the capital is preserved. The main objective of these mutual funds is definitely not high rate of interests but surely the benefits from these mutual funds is more than the benefits from any bank deposits. There is very little risk involved and there is inflation as well. You investment will be maintained according to the inflation, so that the buying power is restored. The mutual funds are very liquid and you get a wider option of extracting out your money and investing in some other investment.
Closed-end Funds and Open- end Funds
There are shares that are kept outstanding and there is a fixed duration of these investments in a closed- end funds. The span can be varying from 3 to 15 years. The funds are only open for subscribing and there is perfect balance of buyers and sellers in this investment.
Though the subscription is closed yet they are available in the stock market and one can invest in them. You can also know the redemption time period of these funds. You can redeem your funds on the ascertained date and reap your benefits.
On the other hand, open- ended funds are always open for all the investors. You can trade with them and they are available every time for investment. The Open- ended funds are not traded like stocks. Most of the mutual funds are also one of its type. The investors have a lot of flexibility and can buy and sell the share of these investments anytime.
Advantages of Mutual funds
There are various advantages of investing in a mutual fund. The advantages are as follows:
If you want your money to be managed properly and by professions, you should invest in mutual funds. Most of us are laymen and do not have the correct understanding about what is right for investing. Hence it is advised that most of us should invest in mutual funds where there are professionals to manage our money and create a proper portfolio of services. The investors can do small investments in different investments and they will be managed properly.
The risk is also minimized for the investors when they invest. They need to own a share of the big investment in which they have put small money. Hence in case of any risk, it will be shared. The idea behind investing in mutual funds is that if the investor is investing in number of securities and if there is a minimal loss in any security, it can be made up by the profits from others. It is also recommended to break up the money in small portions and diversify their investment portfolio so that any loss does not look big. If you are investing in a mutual fund you can invest in various number of stocks and companies and own many securities at the same time. In small investments also investors can benefit a lot.
If you are investing in mutual funds, you are putting your money in varied securities at once and hence the costs charged on transactions is also less as compared to what they pay individually.
There is flexibility in these mutual funds and there is adequate liquidity available for the investors. The investors can fetch out their money at any time during the tenure and convert to cash.
It is very easy and simple to invest in a mutual fund. There are various financial institutions and banks who offer mutual funds where in investors can put very small money in many investments and they can take out money with ease.
Disadvantages of investing in Mutual funds
It is only theoretically said that the money invested is managed professionally but in actual terms, this is not the scenario. According to many experts there is an active debate that are the professionals any better than we investing our money in stocks ourselves. We can also pick up the right stocks with some knowledge about the market. Even if there are profits or losses, the mangers will take their share of money. Hence the charges are not justified.
The costs involved in any mutual fund is very complicatedly knitted. It becomes very difficult for to understand how the mutual funds actually work. There are different layers of investments and mutual funds are not the only way for investing and gaining profits.
There is a lot of diversification involved in mutual funds. There are small portions of investments made in different companies and hence profits from these small portions of investments are of not a very big difference. The dilution in mutual funds could also be because there could be any only one investment giving big revenue. There are various funds which have a successful story and hence the manager can also find the suitable investment options for the money.
While the managers take decisions, they do not consider you specifically and your tax situation. The only goal that the manager considers is that there should be profit and they do not think about the tax that you are liable to pay. The manager does not think how an individual would be impacted from the investments. They would click the picture in a larger frame.
If you redeem your mutual funds before the ascertained date, you cannot gain from them as the profits will be minimized. For any investors who want to gain rapidly from short term investments, mutual funds are definitely not the right choice.
Mutual funds are though not very risky but they are not an ideal short term investment for gaining profits.
Types of mutual Funds
|Type of Open ended funds||Capital appreciation||Risk|
|Equity||High if short term investment is made and vice- versa in long –term investments.||High if short term investment is made and vice- versa in long –term investments.|
|Type of Closed ended funds|
|Fixed Maturity Plan||reasonable||Low|
|Interval Funds- is a blend of Open ended and Closed ended Funds||The capital appreciation and Risk factor can be different in different scenarios.