What are Mutual Funds, Why to invest in mutual Funds & How to invest in Mutual Funds ?

  Well, we all must have read about at least have heard about Mutual Funds.
Today, I will try to explain in a very simple way for anyone from any age group to understand this.



Why should we invest in mutual funds ?

In my previous article, I have explained how crucial is to invest to enjoy life and get financial freedom.
Link for previous article -https://investology1.blogspot.com/2018/10/how-to-do-financial-planning-to-become.html
 So, for all those people who want to invest in equity or stock market, can go through mutual funds.
As the name suggests, mutual means together and fund means money. So, mutual funds are basically a pool of money where investors  i.e. anyone, you or I or whoever want to invest can put their money in the fund.
Historically, it has been proved that the return derived from mutual funds markets for a longer time period has been more than bank FD's Insurance etc. But, why so ?We all have seen India is growing. When I say this, I mean that the number of companies have increase, average income per person has increased.

We are consuming more than our previous generations and the trend will continue upwards. We are using more mobile phones, computers, cars, electronic items etc. as used by our fathers and grandfathers.  And the generations who will come up next will be consuming or using more products than what we are using now.

So, this clearly signifies the our companies are growing to fulfill the increasing demand for each and every item. And this growth signifies and translates in the growth of equity or stock market.
So, more we grow, more we spend, more will be the growth of stock market and mutual funds are the companies which invest in stock markets directly.

Who manages mutual funds?

Mutual funds are managed by highly professional people called Fund Managers who use this money to invest in stock market. Now, why we need them ? We all know for a longer time period, the returns on stock markets are higher as compared to other investments.
But one needs qualifications to invest in stock market and the fund managers are those people who understands stock market really well and invest your money in right stocks at right time to achieve those stellar returns.
We can also invest directly in stock market but we lack all those technicalities required to excel in stock market . Also, mutual fund managers track the stock market closely and this is a full time job for them.
We all are engaged and busy in our work to earn so we can not devote time and learn skills to excel in stock markets and this actually needs years of experience and this is not an overnight job.
Hence, it makes sense to invest in mutual funds and continue doing what we know best.

Mutual Fund Charges.

Now, as I explained above, a dedicated fund manager is managing your funds. But, what do fund managers get in return ? Every mutual fund has an expense ratio usually ranging in 0.15 to 2 % or beyond which includes fund manager fees and other administrative expenses. So, while going for mutual funds, select the mutual fund with lower expense ratio in the same category.

How to invest in mutual Funds?

This is really easy. We only need a PAN Card and there is no requirement of a DMAT account for investing in mutual fund. You name any bank, all of them have their mutual fund houses and you can go with any one .
You can easily sign up on the website of mutual fund you have choses and do it in on your own or your can send an online request for the executive to collect documents from your location.

You can also approach your bank , mutual fund house office and speak with them.

Once you have selected any mutual fund, there is an ECS you can put from your bank account and every month amounts get debited from your account , which is your monthly investment. We call this amount SIP ( Systematic Investment Plan) which is debited from your account . Also, there is an option to pay one time payment as well if someone has received money from some source.

 I will explain in my next article on the types of mutual funds so that you can plan your investments accordingly.
Till then, comments are most welcomed and please let me know if you get any issues in understanding anything explained above.

Thanks
hin.gupta19@gmail.com