What is Mutual Fund? Every question answered here

What is Mutual Fund? Every question answered here

What are mutual funds?

Mutual funds are the diversification of investment.

Let’s understand the principle of Mutual Funds using two scenarios.

- As we all know the percentage returns in Bank FDs are low (5–6 %). So to generate higher returns you decide to invest in a good company. Say, Maruti Suzuki India Ltd. Let’s say you have 2000 rs to invest. Now the stock price of a single share is around 8000 rs. What will you do. You can’t buy a quarter of a stock… right..??? or say you want to buy a corporate bond issued by Reliance company with a guaranteed return (yield) of 8%, but the minimum investment amount is 10000 rs. .. then how do you invest in this ..???. Now you ask your closest 3–4 friends to pool 2000 each so that you can jointly buy a single maruti stock or the bond. This is nothing but a fund used to buy a single stock/bond. Now, the single stock will be owned by each of you and the profits will be shared mutually. This is one aspect of mutual fund.

- Now, you have invested in the stock, but you are not able to keep a track of investment because of your busy work schedule. You don’t know when to buy more of this stock, or when to sell this and buy any other. What do you do then..??. You, then, hire a professional expert to invest on behalf of you and your friends. This investment can be in any stock, bond, gold, silver etc. Investing the funds money, meeting the regulatory requirements, shifting the fund from one stock to another, or one asset class to another is this persons full time job. You are only concerned about the return you get. This is the second aspect of Mutual fund.

SBI Bluechip.

This fund currently has 96.37% of the total fund value invested in Indian stocks of which 75.83% is in large-cap stocks, 7.8% is in mid-cap stocks, 1.06% in small-cap stocks.

ICICI Prudential credit risk fund.

This fund has 94.03% investment in Debt of which 13.2% is in Government securities, 50.52% in funds invested in very low-risk securities…

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