What is a mutual fund?
A mutual fund can be defined as a pool of money invested by more than one investor and taken care of by a professional expert who invests the money in various stocks, bonds or in other securities. An investor olds units in mutual funds which represents the part you hold in the mutual fund. The profits or losses are then distributed among the investors as per the portion/ part they hold in the funds.
What is NAV(Net Asset Value)
Net Asset Value is the price or the market value of the unit that an investor holds. This is the value at which the investor can buy or sell a unit of the funds. These NAV’s are different on each day because they are calculated daily on the basis of value of the shares, bonds or the securities on that particular day.
Why is it beneficial to invest in mutual funds?
There are a few benefits that makes mutual funds really tempting to invest in:
- Professional management: The money that you invest in mutual funds is handled by experts. They have a research team working under them who analyse and compare the performance of various companies and based on the performance of these companies, they decide where to invest your money. So instead of you taking the responsibility of your investment, a money professional makes this decision for you.
- Liquidity: By liquidity we mean that you can sell your funds any time you want. This you can do only once in a day after the calculation of the NAV(Net Asset VAlue) so that you get the money as per the current value of the shares.
- Transparency: As an investor, you have the rights to know everything about your money invested by the professional money manager. In mutual funds you get all the information about the shares like the NAV of the companies, the strategy of the manager, etc. you can yourself check that the shares or bonds in which your money has been invested is beneficial or not.
- More choices: In mutual funds, you can either invest in shares, bonds or any other kinds of deposits or security. Mutual funds provides various investment schemes from which you can choose which one of those schemes suit you the best as per your needs and requirements.
- Diversification: Diversification means that the professional money manager invests your money in more than one schemes, shares or bonds. This helps in decreasing the loss percentage to a great extent. It is rarely possible that all the shares or bonds go into loss at the same time and to the same extent. So by investing money in more than one scheme can decrease the loss percentage for you as compared to investing all the money in a single scheme.
- Low cost and convenient: In mutual funds you don’t need to invest a large sum of money. This is a type of low cost investment in which you get a variety of plans to invest your money in. You can choose a number of investment schemes as per your needs.
- High return potential: As compared to other investment techniques, a mutual funds generate a higher return because it gives you a benefit of investing even your small amount in a variety of schemes which ensures greater benefit for you.
How to invest in a mutual fund?
You can invest in a mutual fund offline or online. If you want to do it offline,you can do it by visiting an Asset Management Company or bank, or you can also ask one of the representative of the AMC(Asset Management Company) or the bank to give you a visit for the submission of the application forms and the other required documents.
If you want to do it online, you can fill up the form for the application to invest in a mutual fund and uploading all the required KYC (Know Your Customer) documents.
Who are eligible for investing in mutual funds:
- Unincorporated body of persons as specified by AMC’s
- Banks (including Regional Rural Banks) and Financial Institutions
- Foreign Institutional Investors registered with SEBI on repatriation basis
- Resident Indians of age 18 or more and in case of minors, their parents or lawful guardians can also invest in mutual funds
- Religious, charitable or individual trusts
- Non-resident Indians (NRIs), Qualified Foreign Investors(QFI) persons of Indian origin (PIO) residing abroad, on a full repatriation basis
- Public or private companies
- International Multilateral Agencies approved by the Government of India
- Trustee, AMC or Sponsor or their associates
- Army / Navy/Air Force / Paramilitary Units and other eligible institutions
Documents that will be required while investing in mutual funds:
In case of resident Indians:
- PAN card
- Proof of Identity like Aadhar card, voter ID card, driving license, passport, etc.
- Proof of address like Aadhar card, voter ID card, driving license, passport, ration card, passbook, insurance copy, telephone/ mobile bill, electricity bill etc.
For NRI’s(Non Resident Indians):
- Certified copy of passport
- Certified copy of proof of resident and permanent address.
Mutual funds are the best way to invest when you want to save your money and time. You can invest in mutual funds even when you don’t have a large capital and a lot of time to analyse and decide where and when you should invest. You leave all the difficult part of analyzing, making strategies and investing your money on professionals.