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Saturday, July 20, 2013

Mutual Funds Investing - Basics | Working | Benefits

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Mutual Funds basics:
Mutual funds is a way of investing in stock markets when group of like minded small investors club their money together and then hire a manager for the money to invest into stock market, All the analysis activities in choosing the stock is put on this manager. Advantage of Mutual Fund investing is that by pooling the money together, investors can target broad range of stocks which was not possible if they wnet alone for investing in stock market. These group of investors would not meet each other ever though.

How Mutual funds work
There are numerous Mutual Funds companies(MFC henceforth) in India. When a person invest in a MFC it buys an ownership stake in the company(kind of share holding but here it is called NAV or net asset value). Price of single ownership unit in a Mutual Funds company is called Net Asset Value or NAV. for eg if you invest INR 10000 in MFC with NAV or INR 100, then you have 100 shares of this Mutual Funds Investing company. These MFC's hire fund managers for analysis and investment of the collected money into stocks, they keep certain fees though. There are numerous MFC's which specializes in stock investment in a particular sector stocks like 'Oil and Gas' , ' Infrastructure' or 'Information technology' etc. If a MF's has portfolio of 500 stocks then MF investors becomes miniature owner of that stock.

Benifits of Mutual Funds Investing
Less capital required - You can invest in mutual funds with a very less amount and still own large portfolio which might not be possible if you invest individually, because in individual investment it is likely that you would run out of money befor purchasing nth stock.
Ease of buyinh/selling: Mutual fund company will give you cash whenever you're ready to sell the stock. Investors who own closed funds can also sell at any time.
MFC are highly regulated: A group has to satisfy lot of regulators requirements before starting a Mutual Fund company, hence there are very less chances of fraud, you will not hear that fund manager took the money and dissapeared (loss is another thing).
Investments are Professionally managed: Mutual Funds companies higher professionals for managing money and doing market analysis before investing money in best stock option available, Individual investor might not have time for doing self analysis before stock purchase.

So we can conclude Investing in Mutual Funds is a good way for investing in stock markets, but as we all hear now and then "Mutual Funds investments are subject to market risks, please read the offer document carefully before investing"

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