What are Mutual Funds

Mutual funds are one of the most preferred investment options for investors. Mutual funds are an excellent alternative if you do not have the time and knowledge to invest directly in the markets. But do you know everything there is to know about mutual funds?

Welcome to the Mutual Fund Masterclass by sharpely. In this masterclass, we will cover everything (from basics to advanced) there is to know regarding mutual funds.

Many of us either invest in mutual funds based on recommendations from close friends or by looking at past performance. However, this is not the right way to invest. Looking in the rearview mirror is not the best way to drive, isn’t it?

In this series, we will cover the below-mentioned topics.

1. The basics of mutual funds
2. How do mutual funds work?
3. What are the different types of mutual funds?
4. How to analyze a mutual fund?
5. How can you create a portfolio of mutual funds?
6. And finally, what are the tax implications of mutual fund investments?

First, let us start by understanding what mutual funds are.

Mutual funds are pooled investment vehicles that collect money from many investors with similar interests. The fund manager then invests the pooled money according to the objective decided initially and tries to generate positive (and hopefully market-beating) returns.

Now, let’s take an example of how mutual funds can help small retail investors. Suppose Ram wants to buy a share of Reliance, ITC, and TCS but has only Rs. 1000. He cannot buy those shares on his own, as the price of a share of Reliance is over Rs. 2000. 

Here is where a mutual fund can help investors like Ram. Let’s assume the fund will collect money from more such individuals who wish to invest in the shares of such companies. If it collects Rs. 1000 from 50 individuals, then the fund will have Rs. 50000 and can easily invest in the said stocks.

FAQs

How much money do I need to start investing in mutual funds?

You do not need a large sum of money to start investing in mutual funds. You can start your mutual fund investment journey with Rs.100. Many funds have different minimum amount requirements for SIP and Lumpsum mode. So, don’t forget to look at those details.

What are the benefits of investing in mutual funds?

One of the primary benefits of investing in mutual funds is that they offer diversification, which can help reduce risk. Additionally, mutual funds are managed by professionals who have expertise in selecting and managing investments.