Mutual Funds are a trending topic in this Digital world but to many people, this seems complicated so we are going to simplify it at the basic level.

WHAT IS A MUTUAL FUND?

A mutual fund is a monetary vehicle that collects money from various investors in order to invest in different equities like Bonds, assets, money market instruments, and other market securities. These investments are managed by professional Fund Managers on a day-to-day basis, who make an effort to create capital gains for the fund’s investors.

After deducting certain expenses and taxes, the income generated from the collective investment is distributed amongst the Investors. Each mutual unit has its Net Asset Value (NAV) per unit.

As per the SEBI guidelines, it’s mandatory that all mutual funds highlight their NAV on every business day. NAV indicates each mutual fund’s market value.

Before introducing any mutual fund scheme, AMC (Asset Management Company) needs to register under the Market Regulator ‘SEBI’ Securities and Exchange Board of India. All the details regarding an investment offering to the public are documented in ‘Prospectus’.

You can calculate a Mutual fund’s NAV by this formula:

NAV (Net Asset Value) = Total Asset Value – Expense Ratio/ Total number of outstanding units

Pros and Cons of Mutual Fund: Things to keep in mind

PROS:

• A mutual fund is a great opportunity for the common man as a professional money manager ensures the maximum return to investors at a relatively low cost. The Fund Manager does thorough research on how to use your investment.
• Here, you can get the option SIP (Systematic Investment Plan), which gives you the flexibility to invest according to your savings and it is started from Rs.500. Also, you can plan your investment according to your convenience on a weekly, monthly, or quarterly basis.
• As other funds lock your money for a certain period of time, fortunately in mutual funds you can withdraw your money according to your needs.

CONS:

• You already heard this statement many times “Mutual fund investments are subject to market risk”. As Mutual funds’ value fluctuates so, the returns on mutual funds are not guaranteed.
• If you are withdrawing your money before the allotted time, you need to pay exit fees.