What is Mutual Fund | Types & Benefits?

What are Mutual Fund | Types & Benefits?

 

 

Many people consider Mutual Funds and the stock/share market to be the same, but it is not so at all. Mutual funds (MFs) and share markets are both parts of the market, but there is a lot of difference.

In this post, we will know the difference between them and what these MFs and how we can safely invest in them?

What is Mutual Fund?

A mutual fund is a fund (collection) in which the money of many investors is mutually held together. This group of funds is managed to earn the highest possible profit.

In simple words, MFs are a fund made up of many people’s money. Which is used to invest in different places, and it is tried to give maximum profit to the investor from his amount.

Managing the fund is done by a professional person who is called a Professional Fund Manager. The job of a professional fund manager is to take care of the MFs and make more profit by investing the fund money in the right place. In simple words, the job of a professional fund manager is to convert the money invested by the people into profits.

Mutual Funds are registered under SEBI (Securities and Exchange Board of India) in India, which regulates the market in India. The work of keeping investors’ money safe in the market is done by SEBI. It is ensured by SEBI that any company is not cheating the investors.

Mutual Funds have been present in India for a very long time, but people do not know much about them even today. Initially, people had the belief that MFs are only for the rich class, but this is not the case at all, and in today’s time, this perception seems to be changing. People’s interest is moving towards MFs, and today, every class of people is investing in MFs. Any person can invest in MFs at the rate of only ₹ 100 per month. The minimum amount to invest in MFs is Rs 100.

History of Mutual Funds

With the formation of Unit Trust of India (UTI) in India on the Reserve Bank of India (RBI) and the Government of India, Mutual Fund Industry started in 1963. Its main purpose was to attract small investors and make them aware of the investments and subjects related to the market.

UTI was formed under an act of Parliament in 1963. It was established by the Reserve Bank of India, and in the early time, it worked under RBI. Uti was separated from RBI in 1978. The Indian Industrial Development Bank (IDBI) got the right to regulatory and administrative control (Administrative Control).

The development of MFs in India can be divided into several stages. The first phase was from 1964 to 1987, in which UTI had a fund of about 6700Cr ₹.

After this, the second phase started in 1987, the entry of the public sector fund started. At this time, many banks got the chance to make MFs. SBI made the first Non-UTI MFs. The second step ended in 1993. In this phase, investors got considerable enthusiasm for the MFs.

The third step started in 1993 which runs till 2003. Private Sector Funds got approval in this step. In this phase, investors had more options for MFs. This phase ended in 2003.

The fourth step started in 2003, which is still going on. The number of investors has been above about 5 CR, and millions of new investors are connected every month.

Types of Mutual Funds

Mutual funds are of many types. We can divide them into 2 categories, the Basis of the structure and based on the ASSET.

A) Types of Mutual Funds based on the structure

1. Open-Ended Mutual Fund

In this scheme, investors are allowed to sell or buy Funds at any time. There is no definite date or a decision to buy or sell funds. This Fund provides liquidity to investors, so the investors are quite much liked.

2. Close Ended Mutual Funds

In this type of plan, there is a fixed maturity period, and the investors can only buy funds during the Fund period. And such funds are also included in the Stock Market. After this, they are also used for trading.

3. Interval Funds

This type of MFs is made together with Open-Ended Funds and Closed-Ended Funds. The facilities of both funds are provided. This allows investors to do the business of Funds on a pre-determined interval (INTERVAL). And on that fixed period, the trading of funds can be done.

These types of MFs, based on the matter, now talk about how many types of MFs are taken based on the ASSET.

B) Types of Mutual Funds on Asset

1. DEBT FUNDS

In such funds, the risks are very low. Investors invest in debentures, government bonds, and other fixed income, which is a safe investment. DEBT funds provide fixed returns. If you want a steady income, then this fund is for you.

2. Liquid Mutual Funds

This is also a safe option to invest in. Liquid funds invest in fewer time loans equipment. So if you want to invest for less time, then Liquid Funds may be your choice.

3. Equity Funds

If you want to get long-term benefits, then equity funds are for you. These funds invest in the stock market. There is also a risk in such funds, but their profits are more than the second fund.

4. Money Market Funds

Such funds offer proper returns to investors in Short Term. It is invested in safe places.

5. Balanced Mutual Funds

Fund deposited in this type of mutual fund is invested at both equity and Debt places. In such a fund, the equity fund and the DEBT fund get mixed benefits. This type of fund investor also provides stability in the income; on the other hand, it also speeds up income growth.

Apart from these funds, there are many types of funds, but these are the main and most commonly used funds.

How to Buy Mutual Funds

By the way, you will find many such Android apps in the Market; by using them, you can easily invest in Mutual Fund. Among them are some specials like Groww, Mycams, Investap, Krack Mobile App, IPRUTOUCH app, etc.

If you consider my advice, then you can use the Groww Mutual Fund App. Because I am using this app for a long time and I have not had any problem yet.

Groww App (Android): Sign Up Now

You will have to sign up in the Groww App; if you already have an account, you have to log in. Once you have made an Account, you can easily invest money in Mutual Funds through this app.

Benefits of Mutual Funds

Mutual Funds have many advantages. But about what Important advantages, today I will give you full information to people.

1. Professional Management

The money you put in Mutual Funds is managed by Mutual Funds experts with their experience and their skills. Professional Fund Manager invests money only after research.

2. Diversification

Mutual funds invest your money at different places. Good funds can not only be invested in different companies but also different sectors and different sizes. Thereby gives maximum protection to the investors.

3. Variety

Today, all kinds of options are present in Mutual Funds. If you wish to invest any kind, it is possible that there will definitely be a Mutual Fund for you, and they will sit according to your needs.

4. Convenience

You can easily invest in mutual funds as you can get money from funds. You can invest in any way, online or offline. There are also much more amenities along with having viable options in Mutual Funds.

5. Affordable

The share price of large companies is quite high. You often want to invest money in those companies, but due to your budget, you can not do this. But many people’s money in mutual funds is together then your money is invested in big companies. And your money earns more profits there. Mutual funds are the way to invest large but small investors through Mutual Funds in big companies.

6. Tax Benefits

Whenever you invest in the stock market, you have to pay a tax to buy or sell the stock. In some funds, you do not have to pay any tax on your profits. But in Mutual Funds, you get a tax discount. This is also a reason by which they are becoming quite popular.

I hope this article about Mutual Funds is helpful for you. Please let me know by like and commenting below.