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What is Mutual Funds and how to Invest in Mutual Funds?

Mutual Fund


What is Mutual Funds: The word Mutual implies a group of people coming together and Funds means pulling of money. Therefore the term Mutual Funds suggest the group of people putting their money together to buy stocks and bonds or in some cases a combination of both. For example, a baker bakes a million-pound cake and the cake is made up of a variety of ingredients, each ingredient is an individual stock or bond. The list of all these ingredients makes up your Portfolio. This Fund is managed by a professional Fund Manager, who manages this pool of money and bills a Portfolio which is inline of the investment objective of the scheme. This ensures that the risk is controlled because all the stocks may not move in the same direction and the same proportion at the same time. Thus it helps to balance things out.

What are Mutual Fund Units and is their NAV calculated: Mutual Funds issue units to the investors and accordance with the quantum of money invested by them. Investors in Mutual Funds are known as unit holders. When an investor invests money in any scheme he or she allowed units. The value of each unit is called N.A.V ( Net Asset Value ). It is reflective of the current market value of a single unit of the Funds holdings. When an investor invests in the Funds, they buy units of the Fund at its N.A.V price. Let's go back to the example of a baker and the cake, to make the cake affordable the baker cuts the cake into many pieces and sells it by the piece. Each and every piece comes at a price in accordance with the amount you pay. A proportionate amount of cake is owned by you the number of units that an investor can buy depends upon two factors: The N.A.V of each unit and the total amount of investment. Hence the N.A.V per unit of the scheme is the market value of securities less total recurring expenses of the scheme divided by the total number of units of the scheme on any particular date. So, if the N.A.V is 15 rupees and the investor invests 15,000 rupees in the scheme then he or she will be alloted 1,000 units. So, basically, the Net Asset Value ( N.A.V ) is the current value of the 1 unit of the scheme. For example, take a piece of cake each piece of the cake includes all the ingredients in various amounts. Each ingredient has a market value. The combined market value of all the ingredients in the cake contributes to calculating the N.A.V of the cake. However, it must be noted that this value keeps changing every day since the market value of security changes every day. N.A.V of a scheme also varies on the day to day basis.

How to Invest in Mutual Funds: Let's look at the step by step way to invest in Mutual Funds and create long term wealth. Be K.Y.C Compliant before investing. To start investing in Mutual Funds the First step is to complete your K.Y.C through a PAN Card Copy, a recent Passport size Photograph, Proof of Address along with the application form, this is a one time process which is essential for investing in any Mutual Funds in India through any mode i.e, online or offline. The Second step is to select the Right Asset Class. Once you have completed your K.Y.C you need to figure out the Right Asset Class as per your Risk Return Appetite. You can either invest in Equity, Fixed Income, Gold or can invest more than one asset classes. The level of risk you undertake to generate expected returns will decide which category you should pick or avoid. The Second step is to choose the Right Funds. Short Listing the right Funds is the most important part in Mutual Funds. Once you have done the research regarding the Asset Allocation that best suits your needs. The next is to look at and compare different Mutual Funds on the basis of their past performance and investment philosophy. Choose the one that matches your objectives 

NOTICE: Mutual Fund investments are subjected to market risks. Please always Read all the Scheme related documents and information carefully before investing.


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