WHAT IS MUTUAL FUNDS EXPLAINED in DETAIL

Hello Friends, You must have heard about Mutual Funds earlier?

There was Phrase somewhat like “MUTUAL FUNDS ARE RIGHT” And since very long you must be listening Mutual Funds are subject to Market Risk please read the scheme related documents carefully before investing.

Now the question Arises Is Investing in Mutual Funds is Actually Right? or is it just a risky thing which you must avoid.

Well, i will share some fun facts related to it.

Till Date, In Indian Mutual Funds there are around 2.57 crore SIP Accounts are there who invest regularly on Mutual funds.

In fact as per 2019 JANUARY data, Total AUM Means “Asset under management” or Fund under management it’s value is 2452085 trillion rupees.

Not billion… its value is in Trillions…

If it compare it with 2009, it’s value has increased by 5 times and if compare it with 2014 means in just 5 years it has increased by 2.5 times.

Now by considering these facts, Is it Truly good to invest in Mutual funds?

Can mutual funds make us wealthy?

Therefore, today i am sharing this post on mutual funds and hopefully all your doubts will get clear and there’s another reason of sharing this post on this topic.

That reason will get clear at the end of the Post…

Now, the Very first thing which i will talk about is

WHAT EXACTLY MUTUAL FUND IS?

If you have read about Richest man in Babylon book summary then you must be aware, if you haven’t read that.

Now i will share some rules briefly –

Rules to Become Rich –

The very first rule out of three was…

PAY YOURSELF FIRST –

PAY YOURSELF FIRST – Means to keep 10 percent of your income, whatever amount you are earning keep 10 % with you and spend your life with remaining 90 percent.

Second Rule – Invest the Money

Second rule was Invest the Money which you have kept with yourself, means to invest your savings so that money can work for you instead of you.

Working your entire life for that money means in simple words invest your money so that your money grows gets multiplied.

Now a normal person who keeps these steps in mind and save 10 percent money and think of investing then in today’s time there are many options which he gets related to investment.

Example: Stocks, share markets, real estate gold etc…

Suppose, a man has less amount therefore avoids real estate and he knows that gold is not giving good returns from several years, so he decides to invest in Stocks because investing in stocks doesn’t need large amount and can get good returns as well.

Now i am assuming that you know what investing in stocks means, if you don’t know then read about it now, lets back to our topic, Suppose if that man go to share market to invest, its not like that he go and invest and immediately he will get profits.

No that is not gonna happen, however in stocks along with money there are three more things which needs to be kept in mind.

1) Risk

2) Time

3) Knowledge

Third is the most important, because from different-different sectors thousands of companies buying a share from the company which can give maximum profit or can give profit without any loss, its not an easy thing it requires a lot of knowledge and also needed a lot of time.

Investment which isn’t possible by lot of people, hence their risk increases, Normally it happens many people invest in stocks by themselves because of lack of proper knowledge, they face a huge loss.

Well Mutual Funds come in between to deal with these problems, in mutual funds instead of investing money in stocks or bonds directly ,You give money to group of experts.

Their work is to invest your money at right time to a right place with the help of their Research & knowledge through which you can get maximum profit without giving your time and Mutual Funds Decreases Your Risk.

Example: suppose there’s a man who has 100 rupees to invest then with that amount he can buy share of only 1 company but in mutual funds, just like that man, there are many more people who give money to mutual fund company. Suppose nine more people give 100 rupees to mutual funds company, so mutual fund company has 1000 rupees in total with which they become capable of buying 10 different companies shares which decreases risk.

Lets understand it again with an example: suppose, a man buys a share from one company, if that company faces loss then the money of that person will be drowned in the stock market, but because of mutual funds if one company faces loss then too, he won’t be in a big loss because his money was invested in different-different companies.

This thing is also known as Diversification, which is done by Mutual funds, it improves your returns chances and decreases your risk.

Now to share what Types of Mutual Funds are?

Types of Mutual Funds

I will use 5Paisa App which i am using for investment, now the another good thing about Mutual funds is that they don’t do Diversification only on stocks, Diversification can be done in different things.

For now if i share 4 common types of mutual funds – the first is

1 ) Equity Mutual Funds – in which principally investment in done only on stocks.

2 ) Second – Debt Mutual Funds: in this money is invested in things like Government Bonds, Company Debentures and Fixed income assets, now what all these things are? i won’t explain it here in detail, but the thing needs to be understood is in these types, risk are lesser compare to Equity Mutual Funds, and obviously if risk is less then for sure returns will also be Less.

3) Hybrid funds – here money is invested in different-different Asset class example: if 50% is invested in Equity mutual funds then 50% will be invested in Debt Mutual funds. Now last…

4 ) Index funds – it’s an Passive form of Fund management, in which money is invested in market index, means in entire market instead of just selecting few companies.

Example: if you buy index fund of Nifty 50, then any company which comes under Nifty 50 and returns which they will get same return will be given to you as well.

Now which is the best mutual fund among these?

I will tell you at the end of this Post –

Now let see whether you should invest in Mutual Funds or Not? well if you think that after investing in mutual funds you’ll become rich in just one day, Then sorry that’s not gonna happen, so forget about it, and if you think that mutual funds can make you rich in few years than forget that too.

But still as per me you should invest in mutual funds because of three big reasons –

Why You Should Invest in Mutual Fund?

No.1) Rich Dad Poor Dad Robert Kiyosaki has said in His book ” ITS NOT HOW MUCH YOU MAKE BUT HOW MUCH YOU KEEP AND HOW HARD IT WORKS FOR YOU.”

Maximum people learn to earn money and with experience they start earning well too but still they fail to become Rich, why?

Because they learn to spend more, they keep on increasing their liabilities, however the very first step of becoming Rich is to know how to save money and should know how to invest that savings.

Same thing is taught to us in the book The Richest Man in Babylon hence when you start investing in Mutual funds somewhere it will make you an Investor mentality person which is really very important.

Reason No.2) Inflation – I still remember when i was in school at that time one “Samosa” used to be of 3 rupees, today that same thing is of Rs 10 – 15, You must have heard someone saying” THINGS WERE VERY CHEAP IN OUR TIME.”

Today everything is getting so expensive, now if we say this more technically, Things are not getting expensive but value of money is reducing.

Why Money value is going down then do read this book “The MONEY SECRET.”

For now important thing is, every year Money value is decreasing Because of Inflation which is increasing by 5 percent every year, means if someone has kept 1 lakh rupees in their cub-board then its value today would be around 95000, means loss of 5 percent, hence it is important to invest your money somewhere.

Mutual Funds is a good option to invest and to avoid the loss of inflation.

No.3) Compound Effect – If i give two options to you… First: I will give 1 corer to you or second i will give 1 rupee now which will continuously get double till 29 days, which option you will choose out of these two?

Well, if you know the Power of compounding then for sure you will choose second option (1 rupee), because that 1 rupee will get 2 rupee in day 2 and in 10th day it will become 512 rupees and in 20th day it will be 5,24,288 rupees But in 25th day it will be 1,67,77,216 rupees and in 30th day it would be 53,68,70,912 rupees.

mutual funds hdfc

This is the power of Compound Effect.

Many people tells it an Eight wonder of the world, Now an important thing is Compounding power is also used in Mutual Funds, means if you invest in mutual funds then you can get the benefits of compounding so because of these reasons and coz of other reasons you can say that… Yes Investing in mutual funds is right…

Which mutual funds will be right for you? its best if you decide by yourself by keeping your financial needs and status in mind, now one more important thing.

Tony Robbins has written a book on this topic named “Unshakeable” he has written that book by interviewing worlds best investors of the world and had learnt from them, in that book he and other great investors Recommends that for us, Index funds are the best option Even Warren Buffet Recommends to Invest in Index Funds.

Why?

Because these are Passively Managed Funds and charges of it are very less, Example: In it you get till 0.1 percent expensive ratio option which can be good for long run and here, human involvement is less, hence chances of human errors are very less.

As you know that no matter how intelligent man becomes, it is very difficult to predict the market, hence if don’t choose any specific companies and invest only in Market then results can be better many times.

If you see a 100 years graph of stock market, then you will notice that ups and downs in stock market is obvious but in long term, market slowly and gradually goes up and will go up only.

If you invest in index funds and mutual funds like an Intelligent Investors then in long term you will get profit from it, just need to have patience.

Which is the Best App for Mutual Funds?

I had learned about this very early that we should invest little bit in stock market always but still i never used to invest in mutual funds and index funds because i used to find creating demat accounts and other paper works very complicated but recently i came to know about a company name “5Paisa” After which i have used that App and Surprisingly i liked that app, i find it cool with the help of it.

I easily bought mutual funds and index funds just by putting my pan and adhaar details means there wasn’t any need of account or paper works and the best thing about it was 5Paisa is Free for MF.

They don’t take commission to buy or sell funds, This was another reason why i never invested in mutual funds before, because i have read somewhere like these middle-man’s charges. A hell lot of commission because of which we can’t see any profit but i didn’t face that problem with 5Paisa, if you want to start investing in Mutual Funds or want to start SIP’S Like me in Index Funds, SIP “Means Systematic Investment Plan” investing some amount monthly on Index or Mutual funds, all these you can do Easily Through 5Paisa App

From here you can download it and can use it now –

In the end, i have shared these knowledge from different-different books but the maximum information knowledge was from the book Bogle On Mutual FUNDS and Unshakeable By Tony Robins if you have an interest in investing then you must read these books.

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