What are Mutual Funds?
Basically, Mutual funds can give the return rate of a minimum of 4% and a maximum of 30%+. It can be of zero risks and also high risk too. Because all this depends on where the asset management company is investing money. If that company investing in stocks then it will be riskier and you will get more returns and if it is investing in the government bonds then it will be less risky.
The word Mutual implies a group of people coming together and Funds mean the polling of money. Therefore the term Mutual Funds suggests a group of people putting their money together to buy stocks and bonds or both in some cases.
Types of Mutual Funds
- Equity Mutual Funds.
- Debt Mutual Funds.
- Hybrid Mutual Funds.
Equity Mutual Fund
- Large/Mid/Small Cap Equity Fund.
- Diversified Equity Fund.
- Equity Linked Saving Scheme(ELSS).
- Sector Mutual Funds.
- Index Funds.
Debt Mutual Fund
Debt Mutual fund is the funds that are invested in the debt instruments (like bonds, debenture, certificates of deposits, etc.). In this type of Mutual Funds, the risk and also the return rate is low.
There are some common types of Debt Mutual Funds. They are:
- Liquid Funds.
- Gilt Funds.
- Fixed Maturity Plan.
- Junk Bond Scheme.
Hybrid Mutual Fund
A hybrid mutual fund is basically a mixture of debt mutual fund and equity mutual fund. There are some common types of Hybrid Mutual Funds. They are:
- Balanced Saving Fund(Equity Saving).
- Balanced Advantage Funds(Aggressive Fund).
- Conservative Hybrid Funds.
Are Mutual Funds safe?
Reasons you should invest in Mutual funds?
- Low Minimum Investment: In Mutual Fund you can start at a very low and affordable cost per month.
- Diversification:.there are many different investments for which you get diversification. In mutual funds, there can be shares and bonds of different Companies. These bonds and shares are selected that these value increases and for this, you get diversification in a single investment. This diversification decreases risk.
- Liquidity: Shareholders of the open-end fund and unit investment trusts may sell their holdings back to the fund at regular intervals at a price equal to the net asset value of the fund’s holding. Most funds allow investors to redeem in this way at the close of every trading day.
- Professional Investment Management: Mutual fund hire a professional manager to supervise the fund’s investments that are why when you invest in a mutual fund then you don’t need to have a professional.
- Almost Complete Freedom: In a mutual fund, you have complete freedom to invest as like I said earlier you can start with low to maximum any money its’ all your choice and also you have the freedom for how much time you want to invest. You can choose funds as per your choice.
- Easy To Invest: with the help of some research on the net you can invest in a mutual fund and with some research, you can choose a good fund.
- Transparency: Mutual funds are required to report the same information to investors, which makes it easier to compare to each other.
- Government Oversight: Mutual Funds are regulated by a government body.
Risks of Mutual Funds
- Market Risk: The Market as a whole may go down sharply. In this case, your equity mutual funds or hybrid mutual funds will also go down in the value.
- Credit Risk: Debt Mutual Funds invest in the bonds and debentures of different companies. These companies may default on these borrowing. To mitigate this risk, mutual funds usually buy on highly rated bonds.
- Fund Manager Risk: The fund manager may not be able to outperform the market. As a result, your fund may give you low or even negative returns.
- Interest Rate Risk: The value of bonds usually falls when the interest rate rises. in such conditions, your mutual funds that hold bonds can also lose value.
- Customization: No opportunity to customize.
Regulation of Mutual in different countries
- The Securities and Futures Commission(SFC).
- The Mandatory Provident Funds Schemes Authority(MPFA).
I hope you understand about Mutual funds. So, if you have any questions or suggestions regarding Mutual Funds, let me know in the comments.