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5 things you need to know if you’re new to Mutual Funds

Wealth creation through strategic investment is something that a lot of people talk about. Instead of keeping money in a savings account for a meager rate of interest, financial advisors will always recommend that you invest your money in funds that are performing well in order to grow your money faster. While this sounds like a great idea, many people are often wary of mutual funds and other investment opportunities because they are not completely sure of how they work. In fact, it’s this ‘fear of the unknown’ that hinders people from making wise investment choices. Well if you’re one of those people, then fear not. With the help of Edelweiss Broking Ltd in Panjim, we’ve compiled a list of 5 things you need to know if you are completely new to Mutual Funds.

  1. Mutual Funds is not an alternative to stocks and bonds. In fact, a Mutual Fund pools in the money of several investors and invests this in stocks and bonds, along with other types of securities.
  2. Mutual Funds have a specifically stated objective. This means that before investing in a particular fund, you can read through the fund’s prospectus, which is a legal document containing information about the fund, its history, who’s in charge (its officers), and the previous and predicted performance.
  3. There are different types of Mutual Funds, with each of one having a different objective. The most popular types are
    1. Equity or Growth: These investments are made in stocks
    2. Debt or Income: These investments are made only in fixed-income securities
    3. Money Market: These investments are made in short-term money market instruments (including government securities)
    4. Balanced: Investments are made partly in stocks, and partly in fixed-income securities in order to maintain a balance of returns and risk
  4. You’re not alone in an investment, and the onus isn’t entirely on you. Once you have selected a fund that you would like to invest in, all the heavy lifting is done by an AMC or an Asset Management Company. These are the companies that put together a mutual fund, and in turn, they hire professional money managers to buy and sell securities based on the fund’s stated objective. An AMC may have several schemes with similar or varied investment objectives.
  5. All AMCs are regulated. The Securities and Exchange Board of India (SEBI) ensures that all fund objectives are stated clearly in the prospectus. Additionally, every mutual fund has a board of directors that is supposed to represent the shareholders’ interests, instead of the AMC’s.

Bonus point

The most important question many people have though, is ‘why invest in Mutual Funds, to begin with?’ Well, there are a number of great reasons to consider Mutual Funds as a means of growing your wealth. First and foremost, funds are managed by professional money managers who are responsible for implementing a consistent investment strategy so you don’t have to. Such funds also give you the option to diversify across assets in order to reduce your risk. Unlike other investment opportunities, Mutual Funds are often more affordable, and very convenient in terms of allowing for periodic purchase plans, automatic withdrawal plans and the automatic reinvestment of interest and dividends. Investors also receive detailed reports and statements that allow them to track the growth of their investment. Though these are all great reasons to invest in a Mutual Fund, the most common reason why people choose this means of investment is to gain tax benefits.

If you’d like to find out how you can grow your income and gain tax benefits as well, you can visit Edelweiss Broking Ltd at their offices on the 1st Floor, 105 Rayu Chamber, Dr. A.B.Road, In Panjim.

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