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Investment In Mutual Funds? Right Or Wrong?

Updated On Dec 28, 2021

If you know what you're doing, mutual funds are a secure bet. When it comes to investing in equity funds, investors shouldn't be concerned with short-term returns fluctuations. You should invest with a long-term horizon and choose the correct mutual fund that aligns with your investing goals. A mutual fund is a type of investment that consists of a collection of stocks and/or bonds that are managed by asset management experts.

In truth, many investors are aware of how to invest in mutual funds but are unsure of the specifics of the procedure and the elements to consider when making a decision.

Depending on their risk appetite and investment term, investors put their money into several sorts of mutual fund units.

Mutual funds provide a well-diversified, low-cost, and tax-efficient approach to grow your money.

Many investors, on the other hand, have no idea where to begin or how to choose the best mutual funds for them.

Here's what you need to know about mutual funds before you start investing in them.

Things To Know About Mutual Funds

Before you invest in mutual funds, you should know the following:

1. Load From The Exit

Exit load is a fee imposed when a fund is redeemed, and the amount varies for every fund. The money deducted in the form of sales charges, exit and entrance loads goes to the AMC rather than the mutual fund.

2. Loading Up

When an investor invests in a mutual fund, he or she is paid an entry load. It's the percentage that's added to the current NAV at the time of purchase.

3. Benchmark

Something against which you can measure your success. Sensex and Nifty are two popular benchmarks. However, depending on the fund in question, there are a large number of them.

4. Period of Lock-In

This is the time frame in which the investment cannot be withdrawn after the date of purchase. 3 year lock-in period for tax-saving mutual funds (ELSS).

5. Returns

A return on an investment is a profit or loss. The change in value/principle amount is what it is all about. We look at 1 year, 3 year, and 5 year returns in mutual funds.

6. Risk

In most cases, risk in an investment refers to the unknown. It's the difference between the predicted and the standard deviation. Depending on its asset allocation, each mutual fund is graded against the risk it posess.

7. Minimum SIP

This is the minimum monthly investment amount you must make in this mutual fund (SIP). The AMC determines the amount.

8. Ratio of Expenses

Total operational expenses divided by the total value of assets under management is referred to as the Expense Ratio (AUM). The total market value of the property managed by an investment or financial institution on behalf of an investor, company, or firm is referred to as AUM.

9. NAV

The entire market value (after all fund associated fees) of all the shares owned in the portfolio divided by the number of units available is the NAV.

Mutual fund losses and gains are determined by NAVs.

When a fund's profit rises, the net asset value rises without a change in the allocated units, indicating that the investment is profitable and vice versa.

Take Away

Anyone interested in learning more about the fundamental concepts behind mutual fund investing should start with the information presented in this article. We hope that this comprehensive mutual fund tutorial has answered all of your questions about mutual funds.

This is by no means an exhaustive list of all aspects of mutual fund investing, but it will get you started.

You may also like to read - Understanding The Differences Between FD And RD

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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