What is a Mutual Fund?
A mutual fund is a financial product that collects money from many investors and invests it in a diversified portfolio of securities such as stocks, bonds, or money market instruments.
Each investor owns units of the fund, representing a portion of its holdings.
A professional fund manager handles the investments, making decisions to maximize returns in line with the fund’s objectives.
Key Terms
- SIP (Systematic Investment Plan): Invest a fixed amount regularly (monthly/quarterly).
- Expense Ratio: The annual fee charged by the fund for management and operations.
- AUM (Assets Under Management): Total market value of investments managed by the fund.
- Exit Load: Fee charged when you redeem your investment within a certain period.
Benefits of Mutual Funds
- Diversification: Reduces investment risk.
- Professional Management: Expert fund managers handle your money.
- Liquidity: Easy to buy or sell units (especially open-ended funds).
- Affordability: Start with small amounts (via SIP).
- Transparency: Regular reports on holdings and performance.
How to Invest in a Mutual Fund
- Decide your financial goal (short-term or long-term).
- Choose the type of fund that matches your risk tolerance.
- Complete KYC (Know Your Customer) verification.
- Start investing lump sum or via SIP.
- Track performance regularly but avoid reacting to short-term market movements.
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