June 13, 2021

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What is a Mutual Fund and how to buy?

What is a Mutual Fund

What is a Mutual Fund

Have you ever heard of what is a mutual fund? Do you know how they work? If not, I will tell you about it today.

Many people only make many imaginations in their mind as soon as they hear about them and without knowing anything they think about it in the opposite way. Which is not right to do at all.

So today I thought why not remove the grief that is sitting on the minds of your people about Mutual Funds in Hindi and make you aware of its truth.

Mutual fund is a very good and easy way to earn money. You do not have to have thousands of rupees to invest in it. You can also invest in it at the rate of only 500 rupees every month.

Many people consider Mutual Funds and stock / share market to be same but this is not the case at all. Mutual fund and share market both share the market but there is a lot of difference between the two.

From this post today, we will know what is the difference between them and after all what is this mutual fund and how can we safely invest in it?

What is Mutual Fund

Simply put, Mutual Funds are a fund made up of a lot of money. In which the money invested is used to invest in different places and it is tried that the investor should be given maximum profit from his money.

The management of the fund is done by a professional person who is called a professional fund manager.

The job of a proffesional fund manager is to look after the mutual fund and to make more profit by putting the money of the fund at the right place. If you put it in simple words, its job is to convert the money put by the people into profits.

Mutual Funds are registered under SEBI (Securities and Exchange Board of India) which controls the market in India. The job of securing investors’ money in the market is done by SEBI. SEBI ensures that some company is not cheating people.

Mutual funds have been present in India for a very long time, but even today people do not know much about it. In early times people believed that Mutual Funds were meant only for the rich.

But this is not the case at all and in today’s time this perception seems to be changing. People have moved towards Mutual Funds. In today’s time Mutual Funds is not just for the rich.

Rather, any person can invest in Mutual Funds at the rate of 500 ₹ per month only. The minimum amount of investment in Mutual Funds is 500 rupees.

History of mutual fund

The mutual fund industry in India started in 1963 with the formation of the Unit Trust of India (UTI) on India at the initiative of the Reserve Bank of India (RBI) and the Government of India.

Its main objective was to attract small investors and to make them aware of the topics related to investment and market.

The UTI was formed in 1963 under an Act of Parliament. It was established by the Reserve Bank of India. And initially it worked under RBI.

In 1978, the UTI was separated from the RBI. The Industrial Development Bank of India (IDBI) got the authority of regulatory and administrative control in place of RBI. And UTI started working under it.

Development of Mutual Funds in India can be divided into several stages. For example, the first phase was from 1964 to 1987, in which UTI had a fund of ₹ 6700Cr.

After this, the second phase starts from 1987, the entry of public sector fund started in it. During this time, many banks got the opportunity to create Mutual Funds.

SBI created the first NONUTI mutual fund. The second phase ended in 1993 but by the end of the second phase, AUM i.e. Assets under management increased to ₹ 47004CR more than ₹ 6700Cr. In this phase, there was a lot of enthusiasm in the mutual fund among the investors.

The third phase started in 1993 which lasted till 2003. In this phase, private sector funds got approval. In this stage, investors got more options of Mutual Funds. This phase ended in 2003.

The fourth phase started in 2003 which is still going on. In 2003, UTI was divided into two separate phases. First SUUTI and second UTI mutual fund, which used to work according to the rules of SEBI MF. Read the impact of the 2009 economic recession on the whole world.

There was a lot of loss of investors in India as well. Due to this, the trust of the people decreased slightly from mutual funds. But gradually this industry started coming back on track. In 2016, AUM was ₹ 15.63 trillion. Which was the highest ever.

The number of investors has been above about 5 CR and every month millions of new investors are being added. This phase has proved to be golden for mutual funds.

Types of Mutual Funds

There are many types of mutual funds. We can divide them into 2 categories. The first is the type of Mutual Funds based on the structure and the second the type of Mutual Funds based on the asset.

A) Types of Mutual Funds depending on the structure

1. Open ended mutual fund

Open-ended funds = In this scheme, investors are allowed to sell or buy funds at any time. There is no fixed date or period for buying or selling funds.

These funds provide liquidity to the investors and hence are well liked by the investors.

2. Close ended Mutual Funds

This type of plan has a fixed maturity period and investors can buy funds only during the fund period. And such fund shares are also included in the market. After this they are also used for trading.

3. Interval Funds

This type of Mutual Funds consists of both open ended funds and close ended funds. In this, the facilities of both the funds are predominant.

It allows investors to trade funds at pre-determined intervals. And the funds can be traded on that fixed period.

This is based on the type of Mutual Funds based on the structure, now we will talk about how many Mutual Funds are taken on the basis of asset.

B) Types of Mutual Funds based on Assets

1. Debt funds

Debt Funds = In such funds, the risk to the investor is very low. Investors invest in debentures, government bonds and other fixed income, which is a safe investment.

Debt funds provide fixed returns. If you want a steady income, then this fund is for you. If the investor’s earnings are more than 10,000 from the funds then the investor will have to pay tax.

2. Liquid Mutual Funds

Liquid Funds = This is also a safe option to invest. Liquid funds invest in short-term debt instruments. So if you want to invest for a short time then liquid funds can be your choice.

3. Equity funds

Equity Funds = Equity funds are for you if you want to get long term profit. These funds invest in the stock market. Such funds also involve risk, but the profit from them is higher than others.

4. Money Market Funds

Such funds provide reasonable returns to investors in the short term. It is invested in safe places.

5. Balanced Mutual Funds

Equity funds and Debt funds have a mixed benefit in such fund schemes. Funds deposited in this type of Mutual Fund are invested both in equity and in debt.

This type of fund gives investors stability in income on one hand and on the other hand, it also promotes income growth.

Apart from these funds, there are many types of funds, but this is the main and most used funds.

How to buy a mutual fund

By the way, you will find many such Android apps in the market, using which you can easily invest in Mutual Fund. Some of them are special such as Groww, MyCams, InvesTap, KTrack Mobile App, IPRUTouch App etc.

Benefits of mutual fund

Although there are many fields of Mutual Funds, but today I will try to give you complete information about the important fields.

1. Professional Management

The money you invest in Mutual Funds is managed by Mutual Funds experts with their experience and skills.

Before investing this money, they research the fund in which the money is collected and collect the information, if after that according to the information collected by them, then they invest only if their money increases.

2. Diversification

The basic mantra of safe investment is that instead of putting your money in one place, distribute it in many places and invest in many places. Every mutual fund invests money in different places.

Good funds can be invested not only in other companies but also in other sectors or perhaps companies of different sizes. Which gives maximum protection to the investors.

3. Variety 

There is something for every kind of person in Mutual Funds today. There are all types of funds for those who want more returns, from maximum secured funds to those with high returns, and who want to have a safe investment.

You wish for any kind of investment, but it is possible that some mutual fund must be created for you and it will sit according to your requirement.

4. Convenience

You can invest in Mutual Funds very easily. You can also withdraw money from funds with the same ease. To invest, you have to fill a form, which you can fill from both online or offline or anywhere.

After this, you can sell or buy funds both online or offline. Mutual Funds have a lot of options as well as a lot of facilities.

5. Affordable

The share price of big companies is very high. Many times you want to invest in those companies, but you are unable to do so because of your low budget. While a lot of people have money together in Mutual Funds, your money is invested in big companies.

And your money earns more profit there. Mutual funds are a way for not only big but small investors to invest in large companies through Mutual Funds.

6. Tax Benefits

Whenever you invest in the stock market, you have to pay tax to buy or sell shares. But in Mutual Funds you get tax exemption.

In some funds, you do not have to pay any tax on your profits for some period. Tax exemption is also a reason why they are becoming very popular.

Before investing in Mutual Funds, collect all the documents and all the information related to the funds. You will be responsible for any damage.