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Home » Important » Mutual Fund and its types, Advantages and Disadvantages of Mutual Funds

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Mutual Fund and its types, Advantages and Disadvantages of Mutual Funds

Posted on September 17, 2021August 16, 2022 By GeekCer Education No Comments on Mutual Fund and its types, Advantages and Disadvantages of Mutual Funds
What is Mutual Fund?

A mutual fund is a fund that is made up of multiple people’s money, where an experienced fund manager manages and invests the money to get maximum returns. Mutual funds are mainly meant for small investors keeping the risk in mind.

Remember if you want to invest safely and you do not have knowledge of market and stock market then this is the best way for you to earn money.

This is a fund made from the money of many people. An experienced fund manager is appointed here who manages the funds of the fund. And to make the maximum profit from the fund in a safe manner, instead of investing in one place, invests slightly different places. These fund managers can be of 10 – 20 years of experience.

In this article we get the idea about Mutual Funds, show does Mutual Funds work, Types of Mutual Funds, Risks in Mutual Funds, Benefits of Mutual Funds, Share Market and Shows the difference between Mutual Funds, Mutual Funds Investment Planning, mutual fund sahi hai ya nahi?

Table of Contents

  • What is Asset Management Company?
  • How does mutual fund work?
  • Profit potential in mutual funds
  • Types of Mutual Funds based on Asset
    • 1) Equity Mutual Fund
    • 2) Debt Mutual Fund
    • 3) Hybrid Mutual Fund
  • Types of Mutual Funds based on Structure
    • 1) Open ended Mutual Fund
    • 2) Closed ended Mutual Fund
    • 3) Interval Fund
  • What are the advantages of Mutual Funds?
  • Points to keep in mind before investing in Mutual Funds
  • Share Market Vs Mutual fund
  • FAQ

What is Asset Management Company?

An asset management company controls the Mutual funds. We can also call an asset management company as a fund house. This company is the company that collects people’s money and runs mutual funds.

Asset Management Company is registered against SEBI (Securities Exchange Board of India), an organization of the Government of India. SEBI is responsible for regulating the market in India and keeping the money invested in it safe.

How does mutual fund work?

Suppose 5 people have 5 thousand rupees and takes mutual funds. Here the fund manager will do research with his team and invest these 25000 rupees in a little bit different places with diversity.

Suppose you have invested some money in mutual fund, here fund manager will invest some in government bonds, some in corporate bonds, some in gold, some in real estate, some in FDs, some in securities. Similarly, mutual funds use money to earn more profit. Since the mutual fund manager invests money in different sectors. If loss occurs in one area, other areas can control the loss.

There is less chance of losses in this investment.

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Profit potential in mutual funds

Remember, you can see returns of 20-25% or more if you invest in it for the long term. In this, the company keeps some profit money and gives the rest to the investor.

Types of Mutual Funds based on Asset

There are three types of mutual funds on the basis of assets which are as follows:

1) Equity Mutual Fund

In Equity Mutual Fund, fund managers invest your money in the stock market / share market. If you want your money to be invested in the stock of good company, then you can invest in this mutual fund. In this your return depends on the performance of the stock market. This fund is not good for sort term investment. But you can get good returns on long term investment. Remember this is a good option if you want to invest for 5 years and above.

2) Debt Mutual Fund

Remember, If you want to invest in good bonds and treasury bills instead of stocks, you can invest in debt mutual funds. If you do not want to take too much risk in mutual funds and want to be safe, then this is the best option.

The fund is invested in government bonds, gold, money market, corporate bonds and securities. There is no time limit, you can invest as long as you want. And you can withdraw money from it whenever you want. You can also call it a mid term plan. If you want to invest for 3 to 5 years then this is a better option for you.

3) Hybrid Mutual Fund

You can say it is a mixer of equity mutual fund and debt mutual fund. If you want your money to be in some bonds and some stocks, you can go for hybrid mutual funds. It is slightly more risky than debt and slightly less risky than equity. This type is mutual fund is for sort term investment. Using this, you can invest for 1 or 2 years if you want.

Types of Mutual Funds based on Structure

There are three types of mutual funds on the basis of structure which are as follows:

1) Open ended Mutual Fund

These are mutual funds in which we can invest and sell at any time.

2) Closed ended Mutual Fund

We can invest in such mutual funds at the very beginning. Thereafter, till the maturity of the mutual fund is not over, neither further investments in the mutual fund can be made nor it can be sold.

3) Interval Fund

In this type of mutual fund, we can invest or sell only at a specific interval. And mutual funds fix these intervals. After the interval is over, we can neither invest nor sell in it.

What are the advantages of Mutual Funds?

The fund managers of mutual funds invest our money in the best company. So that we can get maximum return on our investment. Investing in mutual funds is less risky than investing in the stock market. Because the fund manager knows the risk better than us.

We can choose mutual funds keeping our risk and returns in mind. And if we invest for the long term then we can also earn good return on our investment.

Points to keep in mind before investing in Mutual Funds

We should keep these things in mind before investing in mutual funds. It helps us to invest money without any confusion.

  • First of all we have to set a goal before investing in mutual funds i.e. we have to clear these questions like why are we investing money?, for retirement, for children’s education etc. It helps us to choose the right mutual fund.
  • Mutual funds are best for long term investment. It is not good for near future four or five years as short term investment in mutual funds is not enough.
  • This is the main factor which we should consider before investing money which is risk. We need to determine how comfortable we are with the risk.

Share Market Vs Mutual fund

Some people think of Share market and Mutual Fund as one and the same. And are afraid to invest in it. Although both are part of the market, yet there is a lot of difference between these two. If we compare with the stock market, mutual fund is a very safe investment.

It is difficult to invest 1000-2000 rupees in the Share market and either you have to buy shares. Also, you should have control over how to manage the money. It’s not just about everyone. And it is also not safe whether you will get returns or not. You can also go into loss.

Not so in mutual funds. In Mutual Fund you are safe, your money is in the hands of professionals. It has maximum chances of return. If we talk about SIP. You can deposit 500 or more in SIP. In SIP you can deposit monthly, quarterly, half yearly, yearly etc. It is the best option for small investors.

In Conclusion, If you want to invest safely and you do not have knowledge of market and stock market then mutual fund is the best way for you to earn money.

FAQ

Is it safe to invest in mutual funds?

Mutual funds are related to the market, we cannot say that they are completely safe. Mutual fund money is invested in different sectors, which reduces the risk.

What is the right time to invest in Mutual Funds?

As mutual fund is market-dependent, it is very challenging to predict at any particular time. However, it is known from several studies that one should invest in the market without waiting for the right time. You can choose to wait, but it could be too late to achieve your goal. You may always invest while keeping your goal in mind.

What is the Average Rate of profit (Return) on Mutual Funds?

Investments are market linked, the past performance of a mutual fund scheme does not guarantee future results. The expected average long-term returns for Stock Plan, Debt Plan and Hybrid Plan are 12%, 8% and 10% respectively.

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Important Tags:Is mutual fund Safe?, Learn before Invest in Mutual Fund Online in India, Main advantage of mutual funds, Mutual fund Investment, Mutual Funds Investment Planning

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