What are Mutual Funds and why it is better than Stocks?

It’s important to set aside a portion of your earnings for savings. It’s an aspiration for many people to save up for purchases like a car or a new house. Also, some individuals develop the habit of saving money as a safety net, for situations.

For people, The aim is to keep their money in the bank and build up their savings. There are those who choose to invest their savings. Mutual funds can be seen as a option compared to investing directly in the stock market.

However not having an understanding of funds can lead to numerous queries. For example, what is a mutual fund? How does one go about investing in it? In this blog post we will see a range of questions related to Mutual funds.

What is a Mutual Fund?

Mutual funds provide an opportunity to pool funds from investors and invest in a fund. A professional fund manager oversees the investment of the pooled money into bonds, stocks and other markets.

Each investor is allocated units based on their investment amount, which is referred to as NAV (Net Asset Value).

What is a Mutual Fund: A Guide to Investing in It

Investors, in funds collectively bear the expenses, Reap the benefits of the investment. The level of risk an investor is willing to undertake determines their returns which are contingent upon the performance of the investment.

Mutual funds can be managed in two ways; passively or actively. When it comes to managed funds they tend to offer returns but they also come with increased risk, for investors who opt for this approach.

To put it simply a mutual fund is a pool of money contributed by individuals. This money is then invested in places with the goal of maximizing the investors profits. I hope that clarifies what a mutual fund entails.

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It’s worth noting that during times of downturn, across the country it’s important to bear in mind that mutual funds can experience losses.

Types of Mutual Funds?

There are kinds of funds available each, with its own set of categories. It can be challenging to make a choice among them. Let’s now discuss the types of funds, in detail.

Equity funds are quite popular as they offer the potential, for returns albeit with risks. These funds involve the fund manager investing the amount in the stock market. They are further categorized into schemes, which I’ll explain below.

Small cap funds: This type of investment that focuses on supporting companies, in their efforts to grow their business. While they offer the potential for returns it’s important to note that they also come with risks.

Mid Cap Funds: that invest in companies, with market capitalization values. As the name suggests these funds carry a level of risk compared to large cap funds but also offer potentially greater returns.

Large Cap Funds: here money is invested in established companies. While the returns may be relatively lower they tend to be consistent over time. This makes them an excellent choice for those who prefer a approach and are wary of taking big risks.

Diversified funds: Allocate investments across market segments such, as large cap, mid cap and small cap. This approach is often referred to as a cap fund.

Flexi Cap Funds: The fund manager has the freedom to select their investments. In this category around 65% of the funds are allocated to equity and equity oriented funds, including mid cap and small cap funds. The fund managers themselves make the investment decisions, in these funds.

A liquid fund is a type of investment that allows you to withdraw your money at any time and the funds will be credited to your bank account within 24 hours. It also offers the option to invest for a minimum of 3 days with a maturity period of 91 days.

Debt funds offer a return, on investment. In this process companies or governments borrow money from investors. Provide a fixed interest rate in return. The loan fund can be classified into three categories.

Gilt Funds: These funds involve investing in government bonds, which are considered to have zero risk but offer returns.

Junk bond funds: With these funds money is invested in bonds, which carry some level of risk but provide returns compared to gilt funds.

Fixed Maturity Plan: Think of this as an alternative to a fixed deposit. These mutual funds offer returns, than term deposit receipts. You can only withdraw your money after a specific term.

Why are mutual funds considered better than the stock market?

To understand this its important to grasp how mutual funds operate. When investing in funds you can start with little as Rs 500. This means you don’t need a sum of money upfront.

The managers of the company for these mutual funds pool together smaller amounts from investors. Invest them in the stock market. They also seek advice, from sources before making investment decisions.

When people invest their money they often choose to diversify their investments, across companies. This way even if one company’s stock performs poorly they can still benefit from the stocks of companies.

Investing in funds is an option for those who want to participate in the stock market without having to closely monitor individual stocks.

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In these cases, the fund manager takes on the responsibility of making investment decisions and managing the portfolio.

It’s important to have some knowledge, about the stock market when investing, as understanding market fluctuations and trends can help inform investment choices.

The money you invest is secure and likely to yield profit because those handling it are aware of the best strategies.

Now you might suggest that we personally invest in the stock market to reap the benefits. Yes, that is an option and it can be more advantageous for you.

Yet it does require an understanding of the stock market. For individuals who lack knowledge in this area but still wish to invest mutual funds provide an alternative.

In the world of stock market investments taxes are a requirement. When it comes to funds you can enjoy the advantage of not having to pay any taxes. Instead the responsibility of paying taxes falls on the mutual fund company.

One major advantage of opting for funds is that it allows you to begin investing with an amount of money. This makes funds, for individuals who may not have a significant sum to invest initially but still wish to make gradual investments over an extended period!

Final Words,

When it comes to investing our money we want to ensure that we get the value out of it. Also, when choosing to invest in funds it’s important to select a company that offers the potential, for profit.

Investing in funds can be risky. With proper guidance, from an experienced individual you can also maximize your profits in this area.


My name is Manoj Sharma. I have completed my education at MSC. I possess writing skills, which has led me to become a blogger. My current interest lies in assisting and providing information to people.

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