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Benefits of Investing in Mutual Funds

Benefits of Investing in Mutual Funds

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Published by: Raj Kiran on Aug 14, 2011
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Benefits of investing in Mutual Funds

by CH I RA G on MAY 6, 2010

I have already discussed earlier the various kinds of investment options available. Mutual Funds means a company (Asset Management Co.) collects money from people and invest in equity of various companies on their behalf. From this what we understand is that a Mutual Fund manager invests on your behalf and also offers diversification as they invest in various companies.

It is just like pooling money from people and investing in various different companies of which the value goes up as the share price and this can be seen in the changing NAV (Net Asset Value) of Mutual Funds.

Benefits of investing in Mutual Funds:

Diversification: MF offers diversification as these fund managers invest in various diversified areas and companies. This offers benefits of higher growth rate of NAV over a period of time. Diversification is also a key in value investing! Professional management: There is a professional manager (the Fund Manager) who handles the fund. Risk management: Retail investors focus on risk management, because they might not even have the expertise so the professional manager diversifies and reduces the risk evenly. Liquidity: On can always sell a mutual fund which doesn¶t have a lock in period. Now a days even Mutual Funds are traded on NSE. Well Regulated: Mutual funds in India are regulated and monitored by the Securities and Exchange Board of India (SEBI), which strives to protect the interests of investors.

What are Mutual Funds?
by CH I RA G on JUNE 28, 2010

Mutual funds are investment companies that pool money from investors at large and offer to sell and buy back its shares on a continuous basis and use the capital thus raised to invest in securities of different companies.

In simple words Mutual Fund companies pool money from people and invest on their behalf and investors get various advantages because of this.

How Do They Work?
Mutual funds can be either or both of open ended and closed ended investment companies depending on their fund management pattern. An open-end fund offers to sell its shares (units) continuously to investors either in retail or in bulk without a limit on the number as opposed to a closed-end fund. Closed end funds have limited number of shares.

Mutual funds have diversified investments spread in calculated proportions amongst securities of various economic sectors. Mutual funds get their earnings in two ways. First is the most organic way, which is the dividend they get on the securities they hold. Second is by the redemption of their shares by investors will be at a discount to the current NAVs (net asset values).

Over To you! You may ask questions or can also give your suggestions!

What do you prefer investing in Equity or Mutual Funds?
by CH I RA G on JUNE 23, 2010

Firstly let me tell you what exactly a Mutual Funds is and how does it work. And here are some benefits you get by investing in Mutual Funds. It is a highly debatable topic. A survey shows that over 80% of the investors prefer to invest in Mutual Funds and not in equity directly.

I think most of the people invest in Mutual Funds is may be due to lack of knowledge of investing in equities directly or lack of knowledge in picking up a good stock and may be also because of lack of confidence.

Investing in Equity you can make more money and even loose more money than a Mutual Fund. For an investor with a low risk bearing capacity Mutual Fund is a safer bet. I don¶t like to invest in Mutual Funds much but I have invested my 10% odd portfolio in Mutual Funds (actually SIP).

What¶s your take? Where do you prefer to invest? Mutual Fund or Equity? Comment!

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