Assets Put Money in Your Pocket. Liability Takes Money out of Your Pocket…
What is the Mutual Fund? Let’s know it today…
The mutual funds are one of the most popular investment option available today. The mutual funds mean collected amounts from many investors including bankers, insurance companies, Foreign Institutional Investors (FII), Domestic Institutional Investors (DII).
Similarly, the retail investors such as you and me too can invest in mutual funds where the fund manager chooses to invest in stock, bonds or other investment option available. Importantly, the fund manager has been fully authorized to make a decision where he/she wants to invest the amounts and for this, he/she gets a fee that it comes from exit load i.e. 1% if withdrawal before 1 year.
There are two types of Mutual fund one is –Open-Ended and another one is Close-Ended. In the Open-Ended mutual fund, new investors can buy it any time. In a Close-Ended mutual fund, the investor’s amounts are locked for a specific period say an example for 3 years or 5 years or more. Hence, you can choose it as per your convenient.
Similarly, as an investor, you can buy mutual fund as ‘units’, which basically represent a share in the particular scheme. The biggest advantage of investing in Open-Ended is that unit can purchase (Buy) or redeem (Sell) at the current market’s net asset value (NAV). These NAVs keep changing, according to market movement. However, the minimum amounts to invest in a mutual fund as a lump sum is usually starting from Rs. 5000 (five thousand) and SIP from Rs.1000 (one thousand) onwards.
What is the Mutual Fund orSIP & How do SIP works?
The mutual funds mean as described in the first para, the amounts collected from many investors including bankers, insurance companies etc. and invest in the stock, bonds etc. and the Systematic Investment Plan(SIP) is similar to a bank’s Recurring Deposit and Post Office Monthly Income Scheme where you deposit a fixed amount every month. It is a very convenient through one-time mandate-OTM in case of your bank account is different from a mutual fund house to debit your SIP amounts.
What is the Mutual Fund and How SIP allows you to invest certain pre-determined fixed amounts? Let’s see…
The graph is shown and the benefit of investment in SIP.
Therefore, SIP has been gaining popularity in India among MF investors, as it helps in investing in a disciplined manner without worrying about market volatility and timing. Your money is auto-debited from your bank account and invested in a specific of your mutual fund scheme. You are allocated a certain number of units based on the current market rate of NAV or net asset value.
After that, every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from rupee cost averaging and the Power of Compounding.
When setting the goals, take into account the time horizon for each goal, risk appetite, income, expenses, liquidity needs and return requirements, etc. Once these are clearly outlined, you are on your way to financial freedom. From a small seed, a mighty trunk may grow. As with any good plan, similarly, with investments begin by defining our financial goals.
The great man, Albert Einstein once said, ‘Compound interest is the eighth wonder of the world’. The rule for compounding is simple the sooner you start investing, the more time your money has to grow.Mutual Funds in India are governed by the SEBI (Mutual Fund) Regulations 1996 as amended from time to time. For further details please visit the SEBI Website