What are mutual funds?
When you were a school going child or a college going youth you must have spent a lot of time walking around with your friends. Who can forget a group movie outing and then the usual fast food meal?
Most of us used these with our pocket money and often a group of friends used to collect their money when the time came to pay the bills. In fact, the amount of money a group of friends can make together is often decided by which restaurant they can afford.
Most of the places we would have fun were individually thanks to the purchasing power of the group rather than each of us. This was an unwritten rule of the party. A group may bear more than one person individually.
When so many of us think about the investment that we save at the end of the month, we often think in terms of the small amounts that we have saved. In our early years, our savings each month are barely one in a thousand, if so.
Investment, however, is something that we think needs thousands or millions of rupees. After all, what can a few hundred or thousand rupees do?
Mutual funds are like a group of friends who allow you to eat in places that none of us can personally visit.
1000 rupees may not be very high, but when thousands of people get Rs. 1000 get together, which becomes some serious money. Mutual funds operate on this basic idea.
They are a type of investment fund that recovers money from many investors just like you, and uses that money to invest in various types of investments such as companies’ shares, bonds and even units of other mutual funds. We do.
Mutual funds are usually started by institutions that understand investment and that is why banks and financial firms mostly start mutual funds. While banks sponsor mutual funds, they themselves cannot manage it due to regulations. Day management of mutual funds is done by an asset management company or AMC.
The fund itself is managed by experienced and qualified individuals, called fund managers from AMC, who truly understand the particular assets on which mutual funds invest and the various aspects of investment management.
When you invest in a mutual fund, you get something called a unit. A unit is like a part of the total amount of investment made by a mutual fund. The value of a unit is called the “net asset value” or NAV. The NAV determines the amount you are investing.
One reason why mutual funds matter most to us is that they are the best governed financial instruments for investing. SEBI or Securities and Exchange Board of India regulates mutual fund companies in India.
Mutual funds do not just invest in stocks, but also fixed income instruments – also like fixed deposits.
Mutual funds are managed by professionals who know what they are doing and take care of your money.
Asset management companies that manage mutual funds are governed by SEBI
When you invest in mutual funds, you get units in return for your money.
The unit value of a mutual fund is called NAV or Net Asset Value.
Your money increases as the NAV increases.