What are Mutual Funds??

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You might have heard of this word "Mutual Fund" many times on a daily basis.Still some people have some doubts or unaware of want it really means.I want to keep it very simple by giving some examples along the way.

Before going into the discussion i would like you to have a look at Financial Freedom which is kind of a prerequisite to this topic.

You might have heard of Stocks.Stock is a fundamental unit of mutual fund.Stocks are basically the companies which are listed in different Indices and these are being traded on a day to day basis.Based on this their valuation will change. You can get more information on Stocks here.

What is a Mutual Fund?

Mutual Funds as such you can imagine as a collection of Stocks.There can be different stocks belonging to different domain such as Finance,IT,Banks etc in a mutual fund.Fund Managers of the Mutual Fund house decides what stocks to buy and sell on a day to day basis.The variations in the NAV (Net Asset Value) of the mutual fund purely depends on the performance of the stocks that it has in its portfolio and the ability of the fund manager in managing the stocks.

In nutshell when you are buying a mutual fund you are trusting the fund manager of that fund house in managing the stocks on your behalf.For managing the funds mutual fund companies take some commission for their operation and rest of the profit is returned to the investor.This is called as expense ratio.

There are primarily three categories of Mutual Fund these are 
  • Equity
  • Debt
  • Balanced 

Equity Mutual fund mainly invests in Stocks.These can be actively managed stocks or it can be passively managed like in the case of index funds.These are Risky when compared to other two categories.

Debt Mutual fund mainly invests in bond instruments and these are comparatively safest among the three categories.

Balanced is a hybrid of Equity and Debt and the risk in investing in these funds lies between Equity and Debt.

Please do comment your thoughts on which investment options attracted the most😊.

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