As you probably know, mutual funds have become extremely popular over the last 20 years. What was once just another obscure financial instrument is now a part of our daily lives. A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective.As you probably know, mutual funds have become extremely popular over the last 20 years. What was once just another obscure financial instrument is now a part of our daily lives. In fact, to many people, investing means buying mutual funds. After all, it's common knowledge that investing in mutual funds is (or at least should be) better than simply letting your cash waste away in a savings account. 

A mutual fund is nothing more than a collection of stocks and/or bonds. You can make money from a mutual fund in three ways: 
  Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.
  If the fund sells securities that have increased in price, the fund has a capital Gain. Most funds also pass on these gains to investors in a distribution.
  If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit

Advantages of Mutual Fund: 
  Professional Management
A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.

By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out.

  Economies of Scale
Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than you as an individual would pay.

Just like an individual stock, a mutual fund allows you to request that your shares be converted into cash at any time.

Buying a mutual fund is easy! Most Companies have their own line of mutual funds, and the minimum investment is small.

Equity Oriented Schemes: 
Equity oriented schemes invest predominantly in equity and equity related instruments. These schemes aim to provide capital appreciation over medium to long term. It makes a great buy for investors who plan to invest for at least five years or more. These schemes are not for investors seeking regular income or looking to conserve capital.

Debt Oriented schemes: 
The main objective of debt-oriented funds is to provide regular and steady income to investors. These schemes mainly invest in fixed income securities such as Bonds, Money Market Instruments, Corporate Debentures, Government Securities (Gilts) etc. Debt-oriented schemes are suitable for investors whose main objective is safety of capital along with modest growth. These funds are not affected because of fluctuations in equity markets. However, the NAV of such funds is affected because of change in the interest rate in the country.

Hybrid Funds: 
Balanced funds are a combination of equity and debt funds. The aim of balanced funds is to provide both capital appreciation and stability of income to the investor. While equities provide growth potential, the exposure to debt provide stability to portfolio during volatile times in the equity markets. The proportion of investment made into equities and fixed income securities is pre-defined and mentioned in the offer document of the scheme. Balance Funds have low to moderate risk and are suitable for investor looking for moderate growth over the period of at least three to five years.

Creating wealth through mutual funds: 
what is wealth creation? In the simplest sense - a desire to be rich, a desire to have control over the aspects that effect our financial life, a desire to command respect with the control, our money path and having more than sufficient funds to cater all are needs in future. Through mutual funds we can create wealth and also forgo the market risk factor by a technique called averaging which can be achieved through Systematic Investment plan (SIP) and Systematic Transfer Plan (STP).

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