Basics of Mutual Funds

Mutual Funds is a professionally organized and managed investment funds that are used to buy securities.  Mutual Funds can be very overwhelming. When you go to buy a Mutual Fund then you can come across many schemes that can easily confuse you. Mutual funds are low-risk investing system than individual investment because it is maintained by experts. Mutual Funds in India was introduced in 1963 by Unit Trust Of India.

Mutual funds

Primarily Mutual funds are categorized into two categories

  • Open-end funds
  • Close-end funds

Open-end funds

Open-end funds are those funds which can be easily withdrawn at any point of time. The money will be withdrawn from the scheme within few days.

Close-end funds

Close-end funds are those funds which cannot be withdrawn before the maturity of the scheme.

Types of investment in Mutual Funds

Mutual funds can be classified based on their principal investments. The four main category of mutual funds are-

  • Money Market Funds
  • Bonds Funds
  • Stock funds
  • Hybrid Funds

Money Making funds

It is an open-ended type of mutual funds that invest in short-term securities. It is known for it being safe as a Bank and providing higher yields than a Bank. It is a low-risk fund to invest and this is very liquid in nature.

Bond funds

As the name suggests Bond Funds are those funds that invest in a bond or other Debt Securities. Bond Fund pay higher than Money Making Funds in form of regular dividends. It includes interest payment and periodic realized capital appreciation.

Stock funds

Stock funds invest in stocks and are also called equity securities. It may focus on the certain area of the stock market. Its main objective of stock funds is long-term growth through capital gains.

Hybrid funds

Hybrid funds can be said as funds of funds meaning that they invest by buying shares in other mutual funds that invest in securities. They are usually affiliated but can also be unaffiliated.

Apart from different types of mutual funds, one can invest in endowment plans like LIC Jeevan Saral which invests your money in the market.

The Benefit of investing in mutual funds

Mutual funds can bring you good ROI if invested strategically and can yield good money from the investment made. There is a lot of benefit from investing in mutual funds.

  • High ROI
  • Managed by Experts
  • Ease of investing
  • Tax Benefits
  • Systematic Withdrawal Plan

Fees associated with Mutual Funds

Management fee: The management fee is paid by the investor to the management company

Distribution Charges: Distribution charges pay for marketing, distribution of the fund’s shares as well as services to investors.

Security transition fee: A mutual fund pays expenses related to buying or selling the securities. These expenses may include brokerage commissions.

Shareholder transition fee: Shareholders may be required to pay fees for certain transactions, such as buying or selling shares of the fund

Funds service charges: A mutual fund may pay for other services including:

  • Board of directors or trustees fees and expenses
  • Custody fee
  • Fund administration fee
  • Fund accounting fee
  • Registration Fees
  • Shareholder communications expenses
  • Transfer agent service fees and expenses
  • Other/miscellaneous fees