How Mutual Funds Work

Mutual Fund, as the name suggests is an Investment pool of the money collected from different Investors. This “Pool” of money is further invested into various investment instruments like stocks, bonds, etc. by an expert fund manager. This achieves the investment goal for each investor.

Let’s Understand Mutual Funds

Neha and Shreya are friends. Graduated the same time, started working at 23 and decided to save age 25 onwards for their long-term goals.

Neha saved Rs.1000 every month. At age 65, she had Rs.35.14 Lakhs.

Shreya invested Rs.1000 every month every month. At age 65, she had Rs.8.58 Crores.

Why this huge difference? The answer is Simple, it’s the Approach.

Shreya understood money and invested smartly. Neha saved in FD (Fixed Deposit) while Shreya Invested in Mutual Funds with High Returns. Shreya earned 25 times more than Neha due to a diverse, robust and well-built Mutual Fund Portfolio.

The below given diagram will further enhance your understanding of mutual funds and answer your question of ‘How Mutual Funds Work?’ in a simple manner:

So, what’s in it for me?

Ohh! It’s rather easy to understand. Just have a look at the key points mentioned below:

1. You don’t have to do anything. A professional fund manager manages your entire portfolio of investments.
2. The fee you pay the fund manager is less is as it’s shared with other investors.
3. If you can’t invest a lump sum amount, you can do it through a Systematic Investment Plan i.e. SIP with as less as Rs.500.
4. It’s a basket of different types of investment instruments. This reduces risk as well as gives you the benefits of different types of securities, bonds, etc.
5. You can withdraw your money when you wish; as most of the fund types don’t have a lock-in period.
6. You can save up to 1.5 Lakhs in tax by investing in ELSS Funds which is a type of Mutual Fund Scheme.
7. They can help beat inflation in the long-term.
8. Long term? Short term? There are mutual fund schemes to suit each investment time horizon you have.
9. Buying a house? Saving for a holiday? Purchasing a Car? Planning for your Child’s Education? You name a dream you have and Mutual Funds Investment will help you to achieve all of them. It’s among the best suited investment for achieving your goals.

In conclusion, earn high returns with equity, interest with debt and liquidity of savings account all with Mutual Funds. It’s a complete package. This is why Investing in Mutual Funds will be your best decision yet.