What are Mutual Funds?
As an investor, you may have come across the term mutual
funds at regular intervals but, if you are wondering what
are mutual funds, we have the answer for you. Offered by
asset management companies, mutual funds are pooled
investment vehicles which park their corpus in a variety of
asset classes, based on their underlying structures and
management principles.
How do Mutual Funds work?
If you are wondering how does mutual fund investment work,
here is a quick primer for you -
Mutual fund investments are similar to stock market
investments. Purchasing shares of a company means buying a
small fraction of ownership in the company. When investors
buy shares or units of a mutual fund, they are getting
partial ownership of the investment company and its
financial assets. This means that mutual funds function as
both investments and actual companies engaged in financial
investment.
So, how does investing in mutual funds work, in terms of
returns? Investors earn returns from mutual funds in three
primary ways. Firstly, the stocks in the portfolio provide
dividends, and bonds generate interest. Secondly, during
distribution, investors are given the option to withdraw
their earnings or reinvest them in more shares. Thirdly,
if the securities in the fund are sold at a higher price,
it results in a capital gain for the investor. If the
value of the fund holdings increases, but the financial
manager does not sell them, the unit prices increase and
can be sold for a profit in the market.
At a mutual fund, the AMC and the financial managers are
legally obligated to work in your best interest. Most
mutual funds have a number of employees who are focused on
enabling bright outcomes for investors, including the
manager, a research analyst, an accountant, and a
compliance officer.
Why invest in Mutual Funds?
Investors often wonder why to h1invest in mutual funds.
Investing in mutual funds has a variety of benefits,
especially for small or medium individual investors.
Following are some reasons why you should invest in mutual
funds –
-
Mutual fund investments are comparatively safer because
they are regulated by boards such as SEBI and AMFI.
-
Such investments enable retail participants to partake
in the growth of the market, without needing to commit a
large corpus
-
MFs offer diversification based on their underlying
composition, making it easier to balance risk and
maximise returns.
-
Mutual funds are professionally managed and allow your
portfolio to enjoy professional stewardship, without
paying a large fee.
-
You can pick from a variety of investment options, in
line with your risk appetite, return requirements, time
horizon and investment objectives.
-
MFs offer absolute transparency and help you enjoy the
power of compounding, especially over the longer term.
Know what are the Advantages of Mutual Funds
There are many advantages of mutual funds. If you are
wondering what are the benefits of a mutual fund, these
are the aspects you should know about –
-
Diversification: One of the main benefits of mutual fund
investments is portfolio diversification. Mutual funds
offer a diverse mix of assets, which helps to reduce
overall risk, while fostering a well-rounded portfolio
with good returns. Diversified portfolios include a
range of securities with different capitalizations,
industries, and bonds with varied maturities and
issuers. This aspect also brings into focus the economy
of scale, since investors can build diversified
portfolios, by paying a single fee. This would not be
possible when investing directly in the market.
-
Ease of Access: Mutual funds are easy to buy and sell,
especially when traded on major stock exchanges. They
are highly liquid investments and also provide the
easiest way to invest in certain assets, such as foreign
equities, thus enabling investors to grow their
principal in a sustainable manner.
-
Transparent instrument: Asset management companies are
regulated by SEBI and AMFI, and they are required to
share their holdings on their websites, ensuring
absolute transparency in their dealings.
-
Professional Fund Managers: Mutual funds can be either
active or passive, depending on their management.
However, both these types of funds are designed in line
with the expert opinions of professional fund managers.
Choosing an active fund will allow your portfolio to
flourish under the guidance of skilled professionals, at
a comparatively low fee. They also monitor your
portfolios round-the-clock and undertake extensive
research to make the best calls.
Know what are the Disadvantages of Mutual Funds
As with every investment option, there are some cons to
mutual funds too. Disadvantages of mutual funds include
the following –
-
Fluctuation in Returns: Investors should know that
mutual funds do not assure a fixed return and the value
of the investment may decrease. The price of the mutual
fund is influenced by the stock market, so they react
accordingly.
-
Potentially High Costs: When you invest in active funds,
which are managed by professional fund managers, you
will be charged a management fee and transaction fees.
These costs are incurred irrespective of the fund's
performance, leading to high expenses for investors.
-
Ineffective Diversification: A mutual fund may hold too
many complex assets or not enough, leading to excessive
risk or inadequate diversification. It can be
challenging for investors to determine the right mix of
assets to achieve their investment goals.
-
Mismanagement of Funds: In active funds, the management
calls are taken by fund managers. However, these
managers are also human, and may have a lapse in
judgement, which may cause your portfolio to suffer.
-
Taxation Issues: When mutual fund shares are sold,
capital gains taxes may apply, depending on the
underlying structure and time duration, reducing the
returns for investors.
How to calculate Mutual Fund returns on Edelweiss MF
A common query in the minds of investors revolves around
mutual fund returns. Calculating returns on Edelweiss
Mutual Funds is extremely simple and convenient. You can
simply visit our website, go to the mutual fund returns
calculator and insert the required values. You will
receive instant and accurate results at the click of a
button.
How should beginners invest in Mutual Funds?
Here is your simple guide to investing in mutual funds
–
-
Evaluate your investor profile and understand your risk
appetite, return requirements, time horizon and
investment goals
-
Pick mutual funds which are aligned with your profile
and tax requirements, then decide on the investment
amount and route
-
Ensure optimal diversification in a slow and steady
manner
- Stay invested for the longer-term
- Recalibrate your portfolio at regular intervals
An investor education initiative by Edelweiss Mutual
Fund.
All Mutual Fund Investors have to go through a one-time
KYC process. Investors should deal only with Registered
Mutual Fund (RMF). For more info on KYC, RMF and procedure
to lodge/redress any complaints, visit -
https://www.edelweissmf.com/kyc-norms
What are Mutual Funds?
As an investor, you may have come across the term mutual
funds at regular intervals but, if you are wondering what
are mutual funds, we have the answer for you. Offered by
asset management companies, mutual funds are pooled
investment vehicles which park their corpus in a variety of
asset classes, based on their underlying structures and
management principles.
How do Mutual Funds work?
If you are wondering how does mutual fund investment work,
here is a quick primer for you -
Mutual fund investments are similar to stock market
investments. Purchasing shares of a company means buying a
small fraction of ownership in the company. When investors
buy shares or units of a mutual fund, they are getting
partial ownership of the investment company and its
financial assets. This means that mutual funds function as
both investments and actual companies engaged in financial
investment.
So, how does investing in mutu......