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Mutual funds are known as a smart way to grow money. It is an investment method where multiple investors come together and add their respective funds. The profit and loss occurring in this investment are then compensated in the proportion of the share of the investment.
Mutual Fund Investing
Mutual fund investing is a scheme that is processed by gathering money from different people and is invested in a variety of assets. This kind of collected money is generally invested in marketable securities like shares, stock, and money-market instruments. Nowadays, most individuals prefer investing in mutual funds to meet their specific financial goals. Therefore, mutual fund investments are emerging as the most preferred option for investment.
A team of research analysts, along with a professional fund manager, guides the investment decisions of the investors who have funded into a particular scheme. Further, the personal scheme charges expenses to the investor towards costs related to funding management, distribution expenses, etc.
Types of mutual fund schemes
Open-ended- In this scheme, the investor can buy and sell units freely and is open for investment at any point in time.
Close-ended- These units can be listed on the stock exchange, and investors can trade them. It is accessible only for a limited duration.
Interval scheme- This scheme is another version of close-ended; it can be reopened for a short time during the scheme’s tenure, where the investors can sell back their units.
How to invest in a mutual fund
There are various methods to invest in a Mutual fund-
Demat accounts- Demat account stands for the dematerialised account. It behaves like an electronic bank account. It functions as a bank account that holds shares in an electronic format. It helps the investor to get their physical shares in the form of digital form. As it is an electronic format, it is accessible at any time. It is easy to maintain and access from anywhere.
Agents or Brokers- Mutual fund agent or broker is an individual who brings the investors together and tries buying and selling different mutual fund schemes to them. In return, this individual earns a commission for facilitating the investors to buy a scheme. This agent also helps the investors to understand the scheme properly and guides them through various investment transactions periodically based on their investment actions.
Mutual Fund Companies- As there is a large popularity of mutual fund investment in India, there are so many organisations and companies that manage the investment of investors to receive optimum returns. People are losing interest in traditional methods of investing like gold, real estate, deposits, etc. These companies have the ability to generate high returns as compared to the conventional method of investment.
CAMS/Karvy- Computer Age Management Services (CAMS) and Karvy are the leading companies that provide investment schemes on behalf of various mutual funds organisations. It is the popular Registrar and Transfer agent widely used in India.
Banks- There are many banks that provide mutual fund investment. Though it is easy to buy a mutual fund from a bank, we need to understand their funds, including their holding and the risks related.
Online Portals- There are so many online portals that provide paperless mutual fund investment. In every portal, you need to open a mutual fund account. After the registration, one can invest in any mutual fund scheme and start trading through various portfolios. Examples- Piggy app, Groww, Oro wealth, wealth trust app.
Risks of Mutual Fund Investment
There are some limitations and risks while investing in mutual funds-
No tailor-made portfolios- It is not possible for high net-worth individuals or large business companies to build their own portfolio bonds, funds and other securities.
No control over costs- Even if an individual is facing declined investment, they have to keep paying the fees as long as they remain with the fund. The distribution charges also needed to be paid, which is not required for indirect investment.
Redemption delay- A delay is observed in the flow back of money to the investor’s account.
Portfolio funds Management- As there are too many choices of portfolio funds, the investor may find it difficult to choose one according to his objectives and may need guidance.
Conclusion
In the present scenario, a mutual fund investment company is one of the major emerging industries that need to be supported by a well-educated investor community. This can make people aware of mutual funds besides fixed deposits, recurring deposits, insurance plans, etc. Small retail investors may find it easy to invest as a small amount of money is required for investing in mutual funds. This can help them in learning how to handle money in a professional method, and it may lend access to various distributors and markets. A mutual fund allows the investors to get the benefits of diversification across different companies and sectors.
