How does a mutual fund work
what comes to our mind when someone mentions in virtual fund boring complicated not actually let us explain how does mutual fund work. this is how it works investors like us put their money to form a mutual fund, an asset management company or AMC is appointed to manage the money according to various goals.
The AMC has professional people who understand how markets and money work. Then there are trustees of the mutual fund who keep monitoring the AMC’s activities to ensure that investors interests are protected.
The AMC’s take your money and invest in stocks and fixed-income investments. It’s known that stock markets and bond markets have ups and downs there is no escape from that fact.
To reduce this risk the asset management company does a very smart thing for equity investments they go and invest in not one but several industries this ensures that even if one stock doesn’t perform well the better-performing stocks balance the dip.
To reduce the risk in debt investments they invest in various securities to spread the risk debt funds.
When teamed with an equity investment in diverse industries make for a great investment combo. It has the growth of equity investment and stability of debt funds. All these factors make mutual fund investments less risky than a common direct investing in equity and debt and more beneficial.
What happens after you invest in mutual funds?
Once your money is invested in a mutual fund, you are then allotted units which represent the money invested in the fund. These units are easily redeemable to get back your money and they are generally mentioned along with the NAV (Net Asset Value )
What is NAV?
You must have come across this term a NAV or net asset value of a mutual fund, that represents the value of one unit of your investment after all fund expenses and management fees are paid.
Whenever you feel like checking the market value of your investment, you simply need to multiply the given NAV by the number of units you hold
How to invest?
You can invest in a mutual fund in a lump sum manner or in smaller bits through a systematic investment plan called SIP this makes mutual funds accessible for anyone salaried, entrepreneurs, businessmen. anyone.
Is your investment doing well or not so well?
how do you know Is your investment doing well or not so well? One can see every fund has a fixed benchmark to measure their performance this benchmark could be part of the Nifty or Sensex to judge the performance of your fund You need to check how the fund is performed against the benchmark set for its measurement the fund managers task is to analyze the market and cross the set benchmark of the fund this is exactly why we pay fund managers so mutual funds can offer many benefits like diversification liquidity professional management low charges and more you can go through our video on why should you invest in mutual funds