What is Mutual Funds?
A Mutual Fund is both investment and an actual company. When a Mutual Fund holder buys a part ownership of a Mutual Fund company and its assets. Here we can say that Mutual fund is a company which involves in the business of investment.
Investors typically earn a return from mutual funds in three ways that are given below-
1.Firstly, income is earned from dividends on stocks and interest on bonds held in the funds portfolio. All of the income which is received from Fund owners, out of which funds are paid in the form of a distribution. It gives choice to investors to either receive a check for distributions or to reinvest the earnings and get more shares.
2.If the fund sells the securities which are increased in price, then it is said that the Fund has a capital gain.
3.If the Fund Holding is increased in price but are not sold by a Fund manager, then you can sell your mutual funds for a profit in the market later.
Why Mutual Funds ?
2.Diversification- A mutual Fund gives you diversification and exposure to stocks and bonds at a very low cost, and if you need to buy them directly then in that case you need to invest a much larger sum of money.
3.Low Cost- Expenditure in Mutual Fund is much lower and is expectedly 1.5 to 2.5% of your investment. This amount is paid in the Fund Administration, Fund manager fees and much else.
4.Transparency- Mutual fund is quite Transparent as it is regulated by Securities and Exchange Board of India (SEBI) and their NAV (Net Asset Value). Their Portfolios and other details are disclosed each month and is available in the public Domain, this is how mutual funds are said to be transparent.
How to select a Mutual Fund??
1.Fund Manager Experience- In this we have to see that since how long fund manager has been in charge and what past track record shows.
2.Portfolio- Then it is to be seen whether mutual funds are getting high returns by investing in a small company.