And also, it can be compared with funds of other companies. With its help, you can assess the performance of your fund. The most important criterion of economic health of mutual funds is – NAV. Which you can track daily and assess the profit and loss on your investment. The price of this unit is called Net Asset Value ( NAV). Now, the fund manager comfortably buys the above 5 shares and distributes a total of five shares as a unit among all 100 investors. This total deposited amount with Mutual Fund is called Asset Under Management (AUM). Suppose 99 more investors like you give one thousand rupees each to a mutual fund, then 1 lakh rupees will be deposited with the fund manager. If you have only 1000 rupees for investment, then you will not be able to buy it from the direct stock market.īut if you invest this money in a mutual fund? To understand what is mutual fund let us suppose you want to buy a stock from the stock market that is very expensive and its price is Rs 20,000 per share. Understanding What is Mutual Fund with Example The above image is enough to illustrate your concept of how mutual funds work. Many financial institutions such as banks, insurance companies adopt mutual funds as regular investments because they know that ‘ what is mutual fund?‘ What is Mutual Fund? Craving for Best Mutual Fund Investing? All this does not mean that mutual fund investment is only for small investors. Therefore, it is not very appropriate to keep your extra money in the bank, as the value of money decreases over time.īut initially you should choose to invest in Mutual Fund due to not having a good understanding of the stock market. The rate of interest from the bank on any of your investments is usually less than the rate of inflation. Mutual funds are a means of investing money. Mutual funds give them access to a well diversified portfolio from the securities market at a very low cost. The concept behind mutual funds is quite beneficial for small investors. Mutual funds provide a great opportunity for them. Many people do not have the time or experience to invest in the stock market. You should be clear that investing in mutual funds is not done as DIY.
In my previous post on “ How to invest in the stock market “, I have mentioned that before investing in the stock market you should decide to do it yourself ( DIY) first or not. But it is known as a ‘mutual fund’ in the United States and India. Mutual funds are known as ‘investment trusts’ in the UK. But when you invest your money through a mutual fund, the whole decision to buy or sell shares is made by the mutual fund manager.
In the stock market, you are free to buy any share of a company as you wish. They only invest investors’ money.įor example, when you invest in an equity fund, you do not buy these shares yourself in the stock market. So you now be clear that mutual funds do not have their own money which is invested in stock market securities. You can suppose it like a fund, which is nothing but a collection of money from various sources to serve a predetermined task. In simple words, a mutual fund is an investment company that invests money collected from its shareholders, usually in shares, debt securities, money market securities or a combination of these. Source : Investopedia Mutual Funds Meaning “A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.” Many types of investment companies are included within this term. There is no universal definition of a mutual fund. Let us now come to the main topic and understand “ What is mutual fund?” Mutual Fund Definition Stock prices are also not untouched by their impact. More than 50 million Indian investors have invested their money in mutual funds. Whereas in United States, this number is more than 9500. At present, there are about 44 registered fund houses in India together offer more than 2500 mutual fund schemes. These funds have been the most popular means of investment in the US and many other developed countries for nearly 40 years.īut Indian investors had their first major experience in 1986. In the last nearly three decades, most new investors are taking their first steps in the world of stock market through mutual funds. It is not possible that investment is discussed and there is no mention of mutual fund. If you invest for a long period of time (7-8 years or more), your loss may occur in rare circumstances, otherwise you will always be in profit.īecause it is mutual fund. You are afraid that there will be loss of money! But trust me. Regardless of how often you see mutual fund advertisements. But there is always a fear in your mind whether a mutual fund is right for investment or not ? Many times you think of starting an investment in mutual funds. “ What is mutual fund?” is the traditional but most important question for you as a beginner.