Basics of Mutual Fund Investment

Why you invest in “Mutual Fund.”?

If you were a stock investor before, chances are that you might be a looser in the money market. But do you know how this ‘mutual fund investment’ can give you better return in much safer way? Performance of mutual fund depends mainly on fund manager who manages fund on your behalf. So making an informed decision, choosing a well-performing fund manager is absolutely critical to your success. That’s why you may need Basic Tips on Mutual Fund Investment.

So back to basics, you simply own the mutual funds comprising a collection of stocks and bonds. This makes it a more advantageous. First of all, it allows you to buy in with considerably less money than it would take to purchase the same ‘portfolio’ of stocks/bonds on your own. And then you spreads the risks out there among a group of investor should something go wrong.

Additionally, it isn’t one single stock or bond of one sector alone. Hence you can reduced your risks of losing your money to a greater extent. And always keep in mind that you may be worst looser in stock market due to occasional deep cut in share prices. It’s true that there really is no full-proof method or strategy that is completely safe and without risks.

Mutual funds however have lower risks than many other investment options. This make them an attractive buy for those who lack proper up-to date knowledge and skills in investment market. In fact, mutual funds often have much better rates of return than the average savings account or FD at the local bank. Not only that, you can minimize the involved risks in this type of investment compared to other more risky ventures.

Additionally, if you have an idea of which sectors are performing well and contributing the GDP growth, you are at an advantageous position of choosing a good sectoral fund. But make sure, you always select a star rated company. Diversification is one of the key ingredients of a healthy portfolio and mutual funds will help you get diversified portfolio.

If you are young enough and just beginning your career and in no real hurry for retirement, this is the one of the safest ways to invest your money for the long term. But most mutual funds do not have the high payoffs that many investors seek to include for their retirement planning.

Types of Mutual Fund:

There are essentially three types of mutual funds with some variations on each. First there are money market mutual funds which are open-ended mutual fund. These type of funds invest in short-term debt securities such as US Treasury bills etc. This are widely regarded as safe as bank deposits yet providing a higher yield. These funds are great for the long-term investor. This slow and steady approach to investing are better than leaving your money in a interest-paying savings account. Second are the equity funds that may provide slow growth over time with some income along the way. And finally there are the fixed income funds that are created to provide a current income. This is great for those who have retired or for investors who are extremely conservative in nature.

 Additionally you need to have certain basic knowledge about diversifying your portfolio of rated mutual funds. That can give you handsome return with highest safety. In a booming bull market, investing in diversified Equity Fund is the best option (60% of total fund) followed by Balanced Fund (20%), Midcap Fund (10%), Small-cap Fund (5%) and Liquid Fund (5%). However if you’re highly conservative in nature, you may opt in Debt Fund. But if you’re optimistic and moderate risk taker, you can go for index fund as systematic investment plan (SIP mutual fund). Index Fund can deliver you a very profitable return in a bull market. Why? Because index fund comprises highly rated performing stocks with diversified sectors and hence reliable.

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