Investment in stocks is risky and is difficult to navigate if you do not have comprehensive knowledge of the market. Therefore, for an average investor, mutual funds are the best option to foray into the market. Not only are mutual funds safer, but they also cost less and offer better savings on taxes. Here is all you need to know about mutual funds.
What is mutual fund?
Mutual funds are part of asset management companies who handle your investments so that you do not have to micro-manage them. For performing this service, mutual funds charge a nominal fee. Mutual funds offer the ideal option to those investors who like to invest but do not have the necessary knowledge about the markets.
How to invest money in mutual funds?
Investing in mutual funds is simple. You have to choose between two options when you want to invest. You can either invest directly or seek the assistance of a broker. If you invest directly, your money will be invested in the direct plan of the scheme. However, if you go through an intermediary, the investment will be on the regular plan of the scheme.
If you want to apply directly, you can do so by visiting the website of the particular mutual fund. You may also visit the offices of the company offering the scheme to enter in the scheme. Direct investment is better since you do not have to pay a commission to the advisor. However, direct investment can be tricky because you have to complete the entire process yourself. You would also need to keep a track about the scheme and how well it is performing.
Advantages of mutual funds investment
Now that you know how to invest money in mutual funds, you need to understand why you should invest in mutual funds. Here are some benefits of the same.
- Diversification of risk
When you invest in mutual funds, your money is invested across diverse portfolios. Some of these assets may perform well, but others may not. However, since there is diversity in the investments, the risk is effectively lowered. In the case of investment in stocks, the risk would be much higher, since the price of the stock may fall leading to immense losses.
- Initial capital can be very low
Mutual funds gather funds from a pool of investors. Therefore, each investor does not need to allocate a huge sum towards the investment in question. Diversified equity funds investment can be started at a low initial capital of Rs. 5,000. Some schemes may offer even lower minimum investments, even for diversified schemes.
- Anyone can invest
Investment in stocks requires a great amount of expertise. Without this knowledge, you would very likely incur losses through such an investment. However, mutual funds are much simpler to navigate. Professional fund managers invest the money on your behalf, which reduces the risk involved with the investment. These fund managers choose the right stocks to invest in, leading to good returns.
If you are a first-time investor, mutual funds are perfect for you. Such schemes will not only help secure your finances but will also improve your understanding of the markets.
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