Choosing a correct investment option is very important as it forms the base on which your future returns on investment depends. So if you want to see your money grow then selecting the right kind of investment plan becomes your primary necessity. Mutual Funds are a smart way out for all your investment related needs. Mutual Funds have a definite strategy of investment that focuses on the only goal of growing your money and that too without bothering you much.
In this context, selecting the right kind of mutual fund that suits your investment requirement and style is the major decision that you need to take. Hence we bring forth this article on How to Invest in Mutual Funds? so that you may look and analyze at every option of investing in Mutual Funds and select the best type of Mutual Fund that fulfills your investment goals.
Mutual Funds provide investors with a trust that pools money from them and invests the collected money into different asset classes that fits with the defined investment goals of the scheme. The defined investment goals of a mutual fund scheme are the basis on which the investors decide to contribute money to the pool. Also a mutual fund follows its stated objectives during each and every point of time throughout its operative period.
Once the investors pool their money in a mutual fund scheme they are issued mutual fund units equivalent to the sum contributed to the pool. This money which has been collected from different investors is then invested in shares, debentures and other types of securities by a fund manager who manages the mutual fund.
The workings of a fund manager ensures the investors that they get good returns on their investment much better than what the investor can manage working on his own. The fund manager collects dividend earned out of investing the money pooled in the mutual fund and passes the interest income or losses to the investors in proportion to the number of units held by them. All this forms the basic and underlining concept of investing in mutual funds.
Investment in Mutual Funds offer various advantages to the investors such as diversification of investment portfolio with a minimum of investment, professional management by investment professionals, convenience of operation through either telephone, by mail or even online and also offer advantages of liquidity as well.
Having understood the concept of Mutual Funds, it’s now time to dwell on the various options available to you of investing in Mutual Funds that is How to Invest in Mutual Funds? Let us put before you each one of them so that you are aware of the different ways of investing through Mutual Funds thoroughly enough.
Different Ways to Invest in Mutual Funds
Lump-Sum Investment Mutual Funds
In Lump-Sum Investment Mutual Funds, you have to invest your money at one go. You can invest minimum once and also you have the option to invest any number of times as and when you have the investment money with you. But it is not mandatory to reinvest in Lump-Sum Investment Mutual Funds. You invest a definite sum in such type of Mutual Funds.
They provide you with the flexibility of withdrawing your money at different periods and do not have a lock-in associated with them. Your money can be invested in stocks, debts, bonds or other types of money market instruments which generally depend on the type of Lump-Sum Mutual Fund in which you have pooled your money in. They can be really a good option if you have lump-sum money to invest.
Systematic Investment Plan Mutual Funds
In Systematic Investment Plan Mutual Funds you have the option of investing regularly which is usually once a month. So you can invest regularly after a fixed interval of time. You are also given the flexibility to start investing even with a small amount. So you also have the option of investing in Mutual Funds with a small amount of money with you. They also do not have a lock-in period and you can withdraw any proportion of your invested sum any time you feel like.
Mutual Fund Schemes
In these types of Mutual Funds the fund manager purchase stocks of such companies which have relatively low P/E Ratio (Price to Earning Ratio). Meaning such stocks come with a low price value and offer good dividend returns. You tend to gain high returns on your investment through Value Stock Mutual Funds. They offer income returns rather than capital gains.
Large Cap, Mid Cap and Low Cap Mutual Funds
Stocks in these types of Mutual Funds belong to firms with various asset levels. Generally it is over $2 Billion for Large Cap Mutual Funds; between $2 and $1 Billion for Mid Cap Mutual Funds and below $1 Billion for Small Cap Mutual Funds.
Growth Stocks Mutual Funds
The stocks in such Mutual Funds come with higher Price to Earning Ratio and usually pay smaller dividends. They offer investors with capital gains rather than income.
Stock Market Sector Mutual Funds
The stocks in these types of Mutual Funds belong to a particular market sector such as Retail, IT, Banking, Aerospace, Utilities, etc.
Balanced Mutual Funds
In such type of Mutual Funds the stocks belong to various sectors so as to balance the risk of investment and provide the investor with optimized returns.
Convertible Mutual Funds
The Bonds or Preferred stocks in these funds can be converted into common stocks.
Close Ended Mutual Funds
In Closed Ended fund you have a fixed number of shares. The price or value of the shares changes with the fluctuating market conditions. Fund Managers have lesser control over such funds and the price of the owned shares has much greater influence.
Exchange Traded Funds (ETFs)
In these types of funds the stocks and bonds track highly recognized indexes. They have similarities with mutual funds except the fact that they are traded in the same way like a stock is traded in a stock exchange.
So you see that there are varied types of mutual funds. You can choose any of these funds or even have a mixed mutual fund portfolio. As you have already seen Mutual funds offer numerous advantages to the investor. Thus it would be wise enough to start investing through Mutual Funds. The present article aptly attempts to guide you as to how you can invest in mutual funds and achieve high returns on your investment.