Mutual funds might seem complicated to first-time investors as it can be confusing at times. However, you should not miss out on these investment instruments as they can prove quite beneficial, especially to amateur investors. Let’s understand what is a mutual fund.
What is a mutual fund?
A mutual fund is an investment vehicle wherein an Asset Management Company or AMC pools the money of various investors and invests it in various securities. A fund manager professionally manages the pooled investment and invests it in a combination of equity fund, debt funds, money market instruments, etc. according to your investment profile. These fund managers are mutual fund experts with in-depth knowledge and understanding of the markets. In return, the fund houses charge expense ratio i.e., the annual maintenance fee to manage your investments.
Costs associated with investing in mutual funds
The fund value is evaluated as per the Net Asset Value (NAV),i.e., the market value of the fund’s per unit. It is calculated after the end of each business day by the AMC.
AMCs will charge you an administration fee that covers their brokerage, advertising, salaries, and other administrative expenses. It is usually measured using an expense ratio. Hence, the lower the expense ratio, the lower the cost of investing in that particular mutual fund.AMCs may also charge loads to the investors, which are primarily sales charges incurred by the company in the form of distribution costs.
If you are unfamiliar with associated charges by your fund house, you might find yourself in a position where the earnings from your mutual fund investments are reduced considerably due to the overhead expenses. So, it’s an excellent habit to cautiously read the fine print for details on fees and costs related to a particular mutual fund.
How to invest in mutual funds for beginners?
There are numerous options available to individuals to begin their journey of mutual fund investments. You can invest in mutual funds via an online method or offline method. Let’s understand these two options available to an investor.
Under the offline method, you can invest in mutual funds by submitting a duly filled application form accompanied by a bank draft or a cheque. Further, you need to send this application form to the registrars such as the respective Asset Management Company (AMC) or Computer Age Management Services (CAMS) or designated Investor Services Centres (ISC) along with the necessary documents. You can also invest through your bank if they offer these services.
You, as an investor,also have an option to invest in mutual funds online through the websites of respective mutual fund houses or via their mobile applications. Further, you could also invest in mutual funds directly through the CAMS website. This option is ideal if you are an experienced investor and well-versed with mutual fund investments. This means that you are taking care of your money without the help of any third-party.
It’s a good habit to choose a mutual fund that portrays a consistent record over the years. Also, regularly track and review your mutual fund investments to gauge your performance.Happy investing!