If you are someone you are looking for options to invest money other than your fixed deposit and gold. You might have come across this term Mutual Funds and there are ads playing on TV spreading the message as to investing in Mutual Funds is a good option. “Mutual Funds, Sahi Hai”. If you are new to this financial vehicle and are interested to invest in MF then this article is for you.

A mutual fund is made up of money collected from multiple individuals for the single purpose of generating wealth. This money is invested in various modes such as stocks, bonds, money market instruments, and other asset classes. This pool of money is managed by a professional fund manager. 

In simple words consider a group of 10 friends one of which is good with money and has good financial knowledge. The 9 friends all decide to give money to this one friend who has offered to generate returns and give them more money in return. In this case, the one friend is the Fund manager and the rest are investors in the mutual fund. The rate of return will depend on how well the friend invests this pool of money.

Now let's discuss how this money is invested in the markets. Broadly speaking there are three types of Mutual Funds are Equity, Debt, and Hybrid. The equity funds invest in stocks of the company. The Debt funds invest in bonds and corporate debts. The Hybrid fund has a mixture of both equity and debt or they can be a mixture of other available market instruments.

So if you purchase an equity mutual fund your money is used to buy a bunch of shares of various companies. When these companies' share price goes up your money also increases.

Now let's discuss why investing in Mutual Funds can be a good option. 

Easy to invest: If you want to invest in a mutual fund it is very easy to do so. All major banks provide a significant amount of options to select from. You do not require any special type of account to invest in mutual funds. You can even invest in mutual funds through apps such as Grow which charge minimum fees. You can select the method of investment as well, if you want to make a one-time investment or start a systematic investment plan (SIP) the amount can be as minimum as 500 rupees.

Professionally Managed: As mentioned earlier all the funds are managed by professional fund managers who have several years of industry experience.  The professionals are connected to the markets and can manage the portfolio according to the developments of the markets. You need not worry about various ups and downs of the markets or invest the time to teach yourself all the nitty-gritty of the financial world.

Diversification: It means mixing investments and assets within a portfolio to reduce risk. You might have heard this several times that it is not advised to store all your eggs in one basket. Diversification reduces your risk exposure significantly. Mutual funds own hundreds of stocks in many different industries. This provides a low level of risk exposure if one entity is not performing well. This can be difficult for a single individual as it will require a significant amount of money.

All in all Mutual funds are a very good option to start investing. In my opinion, if you want to develop a habit of investing & saving, just start a SIP, automate it and forget about it. Money will be deducted every month and you will start to keep money aside for the future.

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