Most of us are afraid of investing in the share market because it possesses risk. But as generic nature, we want more return without risk, which is not possible. Here not possible is getting a huge return without risk. In other words, returns can be generated but low, if we take less risk or without risk. Now, we have a solution for you which is a Mutual Fund.
Now let’s understand the concept of mutual fund:
A mutual fund is a trust or a company who invest your money in share market on behalf of you. And generates a return over that and gives back to you.
Now the next answer is how does it work for you:
- The money which is given by the investors to the mutual funds is handled by the great mind called fund manager. Who possess MBA (Finance), CFA (Chartered Financial Analyst ) or graduated from IIM or IIT.
- Whatever amount of corpus ( total money) you give to the mutual fund company are diversified in various companies. It means if you invest $500, this amount will be invested in 50 to 60 different companies. This may sound little crazy that how can be $500 put in this much number of companies. But it’s the truth that mutual fund does that.
To see the live example of above-mentioned click here.
The impact of this is to lower the risk at the minimum level.
Now let’s see how with the help of diversification risk is minimised.
Let’s take an example if you find a company whose share price is $500. You did all the research and found that the company is good enough to invest. You do have $500 to invest and at the end, you invest as well.
Now if this company grows up your money will too grow up and if goes down then yours too. What if this company gets close, here you will lose all the money whatever was invested.
Now think if you could have invested the same amount in 50 different companies. And one of those companies were the same which got closed. Still, there are 49 companies where your money will keep on working.
In the same manner, mutual fund companies work.
You do not have to pay extra charges to invest in mutual funds. For instance, if you directly invest in shares then on every transaction you have to pay brokerage charges. These charges increase your cost of investment but in a mutual fund, you do not have to pay.
Is Demat account required for buying and selling mutual fund?
The answer is no. An investor can also invest through saving account without Demat account. But it requires a platform through which you can invest which does not cost you.
There are many online apps through which you can invest in mutual funds.
Some online platform is Grow app, ET Money, PayTm money etc. or you can directly check out the mutual fund website.
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What will happen to your investment if you invest through a third party company’s platform and that company gets closed?
No need to worry, you will get your all the investment back without any trouble.
For instance, if you have invested in SBI mutual fund through XYZ company and this company gets closed. Then you can directly approach SBI mutual fund and from there you can get your all the investment.
Therefore I never think of losing my money through a mutual fund.
Let me brief you the risk part analyses of a mutual fund, if I talk about risk then I break it into two parts one is being in risk and another is risk beard. E.g if the money invested by you were $500 four months ago and the present value of that is $450. It means you are in loss, not the beard. but at the same time if you sell your investment then you will bear the loss.
Here while being in the loss in a panic we sell the investment which is totally wrong.
Therefore give some time to your investment and do not withdraw unless you are in profit. If you have invested in good funds.