Mutual Fund Investment

What is a mutual fund?

A mutual fund, sometimes referred to as MF, is a type of investment vehicle that pools money from multiple investors to invest in a diversified portfolio of securities such as stocks, bonds, or other assets. It's managed by a professional fund manager who aims to generate returns for investors. By investing in a mutual fund, you gain access to a diversified portfolio, even with a small investment amount.

How do mutual funds work?

When you invest in a mutual fund, your money is pooled with other investors' funds to create a large investment portfolio. A fund manager uses this pool to buy diversified assets, aligning with the fund's objectives. The fund’s performance depends on the collective performance of these assets. Investors own shares in the fund, each representing a portion of the holdings. The value of these shares, known as the Net Asset Value (NAV), fluctuates with the market value of the underlying assets. 

Benefits of mutual fund

Diversification: Spreads your investment across various securities to reduce risk. 

Professional Management: Benefit from the expertise of professional fund managers. 

Affordability: Can start with a small amount of capital with easy payment schedules.  

Liquidity: Most mutual funds have the ability to buy or sell shares on any business day. 

Types of mutual fund

There are various types of mutual funds covering different industries. But broadly speaking, some common ones are:

Equity Funds: Invest primarily in stocks, offering high growth potential but also higher risk. 

Debt Funds: Invest in fixed-income securities like bonds and government securities, providing relatively stable returns. 

Hybrid Funds: A blend of equity and debt securities, offering a balance of growth and stability. 

Index Funds: Track a specific market index, providing low-cost exposure to the overall market.

Key mutual fund terminologies

Net Asset Value (NAV): The fund's per-share value, calculated as the total assets minus liabilities divided by the number of shares. 

Expense Ratio: The annual fee the fund charges to manage your investments, expressed as a percentage of the fund's average assets. 

SIP (Systematic Investment Plan): A disciplined investment approach where a fixed amount is invested regularly. 

Lump Sum Investment: Investing a large amount in a mutual fund simultaneously. 

AUM (Assets Under Management): The total market value of a mutual fund's assets. 

Load: A fee charged when you buy (entry load) or sell (exit load) mutual fund units. Many funds today are "no-load," meaning they don't charge these fees. 

How to invest in mutual fund

While a mutual fund investment can be done through various channels (like regular plans, SIPs, or lump sum), the steps to start one are typically as follows:

Choose a Mutual Fund: Choose a fund that aligns with your investment goals, risk tolerance, and time horizon. 

Open a Demat Account: A Demat account is required to hold mutual fund units. 

Invest Through a Platform: Invest directly through the fund house, a broker, or online investment platforms.

If you are ready to invest in a mutual fund online, you can streamline the investment by linking it to a savings account like 811 Zero Balance Digital Savings Account or 811 Super Savings Account by Kotak811.