What is a Mutual Fund and How Does It Work? How to find Best Mutual Funds to Invest
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What is a Mutual Fund and How Does It Work? How to find Best Mutual Funds to Invest

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I invested Rs 36 lakhs in mutual fund in various funds in October 2021. Not giving giving much returns. What to do.

What is a Mutual Fund and How Does It Work? How to find Best Mutual Funds to Invest

A mutual fund is a type of investment that pools money from many investors and invests it in a variety of securities, such as stocks, bonds, and short-term debt. The fund is managed by a professional money manager, who strives to produce capital gains and income for the fund’s investors. 

There are many different types of mutual funds, each with its own investment objectives and strategies. Some mutual funds focus on growth, others on income, and others on a combination of the two. The best way to find the right mutual fund for you is to first decide what your investment goals are, and then to research the various mutual funds that align with your goals.

person using MacBook Pro on table

What is a mutual fund?


A mutual fund is a type of investment vehicle consisting of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, or other assets. Mutual funds are managed by professional money managers, who invest the fund’s capital and attempt to produce capital gains and income for the fund’s investors. 

Mutual funds give small investors access to professionally managed, diversified portfolios of stocks, bonds, and other securities. Each fund shareholder owns shares, which represent a portion of the fund’s holdings and the income it generates. 

The value of mutual fund shares varies daily, depending on the underlying value of the securities in the fund’s portfolio and the fund’s expenses. When you redeem, or sell, your mutual fund shares, you will receive the fund’s current net asset value per share.

How do mutual funds work?

Mutual funds are investment vehicles that collect money from many investors and pool it together to invest in a variety of securities. These can include stocks, bonds, and other assets. The goal of investing in a mutual fund is to earn a return on your investment, which is typically higher than what you could earn by investing in a single security on your own.

Mutual funds are managed by professional money managers who use the pooled money to buy and sell securities in the market. The managers make investment decisions based on their research and experience in an effort to grow the fund’s assets. The fund’s investors share in the profits or losses generated by the fund’s investments.

Investing in a mutual fund is a simple way to diversify your investment portfolio and gain exposure to a variety of securities. However, it’s important to understand how mutual funds work before investing.

How to find the best mutual funds to invest in.

nifty
Nifty index

There are a number of ways to find the best mutual funds to invest in. One way is to look at the performance of the fund over time. Another way is to look at the fees and expenses associated with the fund. Finally, you can look at the track record of the fund manager.

First of all Mutual funds are for 5 to 10 years not less than one year. But to answer this question we need to know 4 basic things;

  1. Why did you invest
  2. What’s your strategy
  3. How long you wanted to invest
  4. What’s your risk taking ability

At that time the market was at peak. Market down by about 8-9% since then. Returns may be negative. Hold. In October 2021, the Sensex was at 60K and now it is at 57K. So an effective reduction of 5%. How are you comparing your returns? What was your expectation? If you cant accept a 5% swing, may be you shouldn’t invest in equity. Instead of asking which is the best fund to invest, read a bit about how market can be volatile and what you can do.

You have just invested and that too lumpsum. Mutual funds are supposed to be for long term and ideally one should not invest in lump sum. Wait for at least 5 years. Equity Mutual fund investing is for long term, don’t expect returns in few months that too when markets are consolidating. Market has already given solid returns in last 2 years. So, this year may go in more of consolidation than good returns. Wait for 3-5 years at least to see good rational returns provided you have chosen some good funds. Its a long term journey hold tight and stay calm.

What to do when Mutual Funds Invested Not Giving Promising Returns

Looking for mangos after 8 months is too early where as looking for tomato after 8 months is too late. It’s the objective that matters. 2022 is not looking good for equity market. Bull market is over now and we are about to enter into bear market.

Another reason is that the whole market did not move much. It is likely you have invested lumpsum in equity funds close to the market top. Firstly it’s Mutual Fund not Aladdin’s lamp to be amazing… Secondly while investing you might have surely researched about the fund and might have decided a tenure for the investment.. Be disciplined… Review of Fund performance need to be done annually only. If still not satisfied contact your FOF and he can help you with the funds

Tip: if you have changed your mind to about the ability to handle market fluctuations in the last 6 months, you can do one of the three options, third being the best.

  1. Move funds to debt and do STP
  2. Move all funds to asset allocation based funds like BAF, it is not yet too late
  3. Sit with a financial planner and chalk out a plan specific to your mindset and risk bearing capacity.

BAF if balanced advantage fund. Go to the coin website and explore equity +debt fund. They do the asset allocation for you. Please read and understand the pros and cons before going forward.

There are only two scenarios when you should invest in lumpsum

  1. You don’t care where equity markets head in short term as you will not pull out the money. Please check your definition of long term before you invest
  2. Wait for decent correction of minimum 10% from ATH, and invest. This way you are at least not stuck at high prices. The long term rule still applies, albeit you may get satisfaction of some green ticks.
    And if volatility is not something you can comprehend despite trying, stick to boring sip.

About Post Author

Robert

He is a prolific writer and finance enthusiast. He likes to read more about the latest updates in finance sector and share tips and tricks to improve personal finance security.
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