Mutual funds are managed by mutual fund managers of the respective fund house.
It is a type of organization that takes money from people like you and me would create a pool of funds and this pool of funds will be invested in different investments. (mutual fund investment)
In stock market investment, you make your own decision. you know where you have to go, how to go you have expertise in that. But in the case of mutual fund investment, you are not bothered to explore things. You better hire a professional. He will make decisions for you that’s exactly what a mutual fund does. So in simple words, a mutual fund means there is a mutual fund manager. who takes decisions on your own money which is invested with the mutual fund.
It will collect money from people like you and me. Let’s take an example of mutual fund investment.
So assume that there is a pool of hundred people and these hundred people gave funds or contribute some money to M.F. Now this mutual fund is going to reinvest this money into different investment opportunities like a mutual fund. It can invest in equity or can debt. mutual funds can also invest in either or both. So that depends on the objective of the mutual fund scheme.
Asset management company -(mutual fund investment)
- Asset management company starts M.F you give your money to the asset management company and many people like you do so. That company invests all the money collectively at different places. They have appointed experts and with their suggestion, they invest money. They invest money at different places and the return rate they get collectively from these different places out of that small percent of 1-2% is kept as a profit by the asset company and the rest you get back as per that return rate.
ICICI, Aditya virla, Reliance, TATA, HSBC.
- These are the few examples of companies and the bank who have started their own asset management company. For example, ICICI has started more than 1200 mutual funds.
So how risky are your mutual funds and what is the return depends on the mutual funds that you are investing in? A mutual fund can give a return rate of 4% and 30% too. It can be of zero risks and also of high risk. Because all this depends on where the asset management company is investing your money. If that company is investing in stocks. Then it will be riskier and you will get more returns and if it’s investing in government bonds then it will be less risky.
Types of M.F:-(Mutual fund investment)
Equity M.F –
- In Equity Mutual Funds, your money will be invested in the stock market. So naturally in this type of mutual fund generally the risk is more and also the return.
- In the stock market on which kind of company are you investing, if it’s a big company then it’s called large-cap equity funds.
If it’s a small company then it’s called a small-cap and in the same way Mid Cap equity Funds.
Debt M.F –
- These are those mutual funds that are invested in the debt instruments. Debt instruments are bonds, debenture, certificates of deposits. Let’s take an example of a Government bond. Sometimes if the government needs money and it’s not getting that through the budget then the government borrows money from the people and takes loans from the people. It is called bonds
- You can invest here, give it to the government and the government will return you the money after a fixed interest.
Hybrid M.F –
- It is a mixture of debt and equity mutual funds. Some people want to invest in the stock market. But don’t want to invest all the money there. They also, invest some amount in the Debt instruments. so a hybrid mutual fund is for them.
- The biggest advantage of mutual funds in comparison to other investments is that it is already diversified. Your risk gets very low by diversification. Because you are not investing in one place so if one thing crashes so it won’t affect your money. So in comparison to the stock market, gold, real estate, mutual funds are less risky.
However, the exact risk depends on the mutual fund that you are investing in.
One more advantage is that it is affordable, you don’t have to invest a big amount together. you can SIP and invest a small amount every month and all the investment of the mutual funds is done by a professional expert or a fund manager who decided where to invest and where to not.