What is Mutual Fund ? Tutorial Part-1

We all have many options available to invest our savings money, in this case Mutual Fund is also a medium for investors to invest.

The way investors invest in any other type of investment, such as Fixed Deposit, Recurring Deposit (RD), and expect to earn returns on it after a certain period of time,

Similarly, Mutual Fund investment is also the best medium of investment, where investors can earn better profits by investing.

“We all want to make more profit by investing with less risk,

And in such a situation, MUTUAL FUND is seen as an investment that earns more profit with less risk.

It is worth noting, like any other investment, there is some risk in “Mutual Fund”, an investor must keep complete information about all types of risk associated with any investment,

Let us now try to understand Mutual Fund in some detail-

What is MUTUAL FUND?

Mutual Fund is made up of two words – Mutual and fund.

meaning of Mutual is – mutual, mutual, mixed, mutual relationship,

And fund means money (money collected together).

In this way Mutual Fund means – many people gathered together – mutual fund

Mutual Fund is also called MF in short.

In this way, the money deposited from different investors is invested in the stock market and government or corporate bonds, etc., according to the objective and condition already mentioned in that mutual fund.

In other words,

“Mutual fund is such an investment system, in which a huge fund is prepared by combining the money of many people together.

And this FUND is invested by the manager of the Mutual Fund in a very well planned and diversified manner in different investment options,

And in this way, the profit from the investment is distributed among all the investors in the proportion invested by them.

How does Mutual Fund work?

Mutual Fund is a Unit Investment System

Mutual Fund is such a system of investment, in which money is deposited from different investors, and in exchange for the deposited money, units are given to the investors.

MUTUAL FUND UNIT AND MUTUAL FUND UNIT HOLDER

And thus the mutual fund investor is called a unit holder,

The unit given to the mutual fund investor has a price, which is also called the mutual fund unit price.

And this unit price keeps changing daily, which tells the profit or loss to the investor in the mutual fund.

NFO- NEW FUND OFFER

Any mutual fund scheme, when it brings an offer to the public for the first time to invest in the scheme, it is called NEW FUND OFFER.

NFO is an offering similar to the IPO of the stock market.

In NFO, units of MUTUAL FUND are offered to the investor at a fixed price,

For example, if SBI brings a latest mutual fund scheme, then KIM (KEY INFORMATION), SID (Scheme Offer Document) and leaflet can be seen on its website.

Where all the information related to the offer is available,

The thing to note is that, there is also a minimum investment amount in NFO, like -5000, or 1000 rupees,

And NFO is open for few days, and later it becomes CLOSE,

Once the NFO is CLOSE, suppose –

The company deposited Rs 1 crore from NFO, and whose unit price was Rs 10,

So that’s how the total units there becomes 10 lakhs,

And if I invest Rs 5000 in NFO, I will get 500 units,

Now let’s assume

That mutual fund invests as per its offer document and after one year he has a profit of 20 lakhs on the deposit of 1 crore from NFO.

So in this way, the profit of 20 lakhs will be distributed among all the units,

And so, each of the 10 lakh units made a profit of Rs.2 per unit,

And after one year, the 500 units that I have, I will get a profit of Rs.2, then my total profit will be-

500 X 2 = 1000,

And after 1 year the price of one unit of that mutual fund will be Rs.12,

And if after 1 year a friend of mine wants to invest in the same mutual fund, then he will have to invest Rs.12 per unit, Rs.

MUTUAL FUND is a diversified investment,

The special thing about mutual funds is that, with the aim of earning better and regular returns on investments, mutual funds invest money deposited from different people in SHARES of different companies of different industries or sectors in the stock market,

So that profit can be earned by controlling the risk of investing in the stock market,

The main objective behind investing in different stocks is diversification.

All stocks do not always move in one direction, sometimes some stock prices increase, then some stock prices decrease, and this always goes on,

Now such mutual funds, keeping in mind this basic FACT of the stock market, invest in the shares of companies of different industries or sectors, so that if the share price of any company decreases, then the share of another company will increase. keep up the pace

In this way it can be said that

The amount invested by thousands of investors in mutual funds is controlled by the manager of that mutual fund, by investing in a planned and diversified way, the risk of investment is controlled, and efforts are made to give regular and better returns to the investors. ,

MUTUAL FUND AND STOCK MARKET INVESTMENT

There is a deep connection between mutual funds and stock market investment, because most of the money of mutual funds is invested in the stock market,

“Mutual Fund” is an indirect way of investing in the stock market.

It can also be said, Mutual Fund is an indirect way of investing in the stock market, because whatever money investors deposit in a mutual fund, most of that mutual fund is invested in the stock market itself.

“People who want to invest in stock market, but they lack knowledge about stock market investment, in such a situation, they can invest their money in stock market through “Mutual Funds”,

Because a mutual fund manager is an expert person in the stock market, who, using his knowledge and skills, invests the money of the mutual fund investors in the stock market.