What is Mutual Fund?
Mutual Fund – I am sure you must have heard this term over and over again. But, what does it mean? Well, let me break it down for you in the simplest manner ever.
A mutual fund is a fund created by the money collected from many investors.
This fund is then invested in various types of securities or investment options like stocks, bonds, money market instruments, and other assets. To be precise, when you invest in a mutual fund, you are investing in a diversified portfolio, you own a little bit of stock, a little bit of bond, and so on.
You get the capital gains from these securities as your return on investment (ROI). This is considered a much safer option as you do not have all your eggs in the same basket.
What makes mutual funds even better is that you do not need to worry as to which stock to choose or which treasury bill would be the right option. You have finance professionals who manage the fund and invest it in lucrative options to give the return promised to the mutual fund investors.
India is a booming economy with more and more people wanting to expand their financial knowledge. People are ready to make investments now more than ever before.
But it is simply not possible for someone, who earns Rs. 15000/- per month ($193.58) to purchase a share in Google/Alphabet that is worth Rs. 1,78,215.50 ($2300.00) as on 17th May 2022.
Even if someone tried to do so with the said income above, it would take him a long time to save such an amount and with inflation, the share price would also rise simultaneously.
So, how can he invest in Google if he wanted to? Well, this is where mutual funds come into the picture. It allows even small investors to make a proportionate investment in high-worth shares like that of Google and Amazon or even Reliance Industries Ltd.
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When you invest in a mutual fund, you get a unit/share in that mutual fund. This unit contains a proportionate share of different stocks but never a single holding or share of a company.
The price of a mutual fund is termed Net Asset Value (NAV). This can simply be calculated by dividing the value of the securities in the portfolio by the total number of shares outstanding.
The value of a mutual fund is set by the performance of the securities that were bought using those funds. If the curated combination of such securities performs well even on an overall basis, the value of that particular mutual fund rises.
Some of the popular Mutual Funds:
- ICICI Prudential Focused BlueChip Equity Fund,
- Aditya Birla Sun Life Small,
- Midcap Fund, Axis Liquid Fund, and
- Tata Equity PE Fund.
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