Mutual Funds

What are Mutual funds?

An investment scheme where investors collectively invest in company shares and bonds. Mutual Fund schemes can be bought either through a brokerage house or directly through an investment app. You can invest in mutual funds and take advantage of the fluctuation in the prices of shares. A mutual fund portfolio contains both equity and debt instruments, thus giving you an avenue to balance the risk as well as enjoy higher returns at the same time.

Why invest in mutual funds? 

Mutual funds are investment schemes that offer you an array of benefits. Outlined below are a few:

Diversification benefits: Through mutual funds, you can invest in stocks of more than one company and spread your investment across sectors. It helps in balancing the risk through diversification. 

Small is big: Mutual funds allow you to invest as per your budget. You can opt for SIPs and invest across various sectors within your budget

Professional management: A professional fund manager manages the investment. Hence, your fund manager identifies potential risks and safeguards your interest by monitoring your funds. 

Compounding benefits: Investing in mutual funds also allows you to get the benefits of compounding. 

How do mutual funds work?

As an investor, you can invest in a mutual fund scheme based on your risk-bearing ability, your investment objective, and your investment horizon. Your mutual fund scheme includes investment in equity, bonds, and fixed income securities for debt mutual funds. For balanced mutual funds, your portfolio of funds may include equity and debt. 

What actually happens is that the number of units you buy grows in number. The income in mutual funds mainly comes due to rupee cost averaging as the value of your funds goes up over time. Thus, in the case of mutual funds, the returns are generated in the form of capital gains which are reinvested to create additional gains.

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