The Different Kinds of Mutual Funds

One great way of earning some extra cash besides your salary is investing in a mutual fund scheme. The idea is easy enough. You find a scheme you like, you make an investment and basically start making a profit in the form of dividends. But sometimes all that is easier said than done. With the sheer number of mutual fund schemes out there, it sometimes gets difficult and often confusing to find a scheme that best suits your various needs. But, before you find out about the different types of mutual funds, you need to know what it actually means and then go from there.

So, what exactly is a mutual fund?

A mutual fund is a pool of money that is collected from investors like you and handled by a professional. Your fund manager takes the money and invests it into buying securities like bonds and equities and what not. Depending on the performance of your said securities, you make a profit in the form of dividends. Although some mutual funds allow you tax benefits instead of dividends. 

Now, there are many different kinds of mutual fund schemes out there, giving you the option to choose according to your needs and tastes. Some of them have been discussed below:

• Systematic Investment Plans

The systematic investment plans or SIPs allow you to invest tiny sums of money periodically instead of investing a large lump sum. This a specified amount of money is deducted from your account on a quarterly, monthly or weekly basis.

• Equity Funds

Equity funds allow you to invest a large amount of money to buy shares of a company or an organization. This means a percentage of the profit made by your shares will be yours.

• Debt Funds

To know what is debt fund, you need to know that sometimes companies require financial help that they derive from your investment. So, the company is legally bound to pay you interest money each month. If the company cannot stay afloat and dissolves, you get your money back.

• Liquid funds

Liquid funds are debt funds where you invest for a short period of time like a day to maximum a period of 6 months. The investments are made of short-term securities like government securities, treasury bills, and call money. With the liquid mutual funds, you can redeem your money within a day.

All the mutual fund schemes out there, including but not limited to the ones listed here, also offer what one calls the direct mutual find. This type of fund is the opposite of a regular fund where you employ a broker or a distributor to invest with the AMC. Instead, you skip the process and invest directly with the AMC. Thus, you save money when it comes to distributor fees.

The Benefits of Investing in Mutual Funds

The benefits of investing in mutual funds are many and varied. One of the obvious things that you get out of investing is that you have the chance of making some extra money each month besides your usual salary.  Or you can choose to make long term plans and invest in funds that let you save up for, say, your retirement, your children’s education or even their weddings. Other than these things, many mutual funds also offer you tax benefits. The trick is to research well and find a scheme that is perfectly suited to your needs. But the process can tend to get a bit confusing due to the sheer number of mutual fund schemes out there. Before you find out anything else and are knee-deep in research, though, you need to know what mutual funds actually are.

What are mutual funds?

A mutual fund is basically a pool of money that is collected from a lot of investors and managed by a professional referred to as a fund manager. The fund manager then takes the money and uses it to buy securities like equities, bonds, and small caps. Depending on how the securities perform in the market, you get a percentage of the profits that are calculated by referring to how much you're invested in the first place. However, not all mutual funds offer profits in the form of dividends. Some even offer one tax and other benefits.

The many perks of investing in mutual funds

One of the best ways to secure your money and also reap multiple benefits in the process is investing your money into mutual fund schemes that suit your many needs and specific preferences. Once you have narrowed down the specific schemes after the appropriate amount of research and accounting for inflations using an inflation calculator, you would like to invest in, you will be able to start earning money or getting tax benefits out of them on weekly, quarterly or monthly basis. Some other benefits of investing in mutual funds include: 

1.       Being able to sell your shares and getting money out of it at any moment of time. The value of those shares might vary depending on the market.

2.       You can choose to invest tiny amounts of money periodically over a long period of time and earn and save more in the process

3.       ELSS funds give you a lot of tax benefits

You can invest small amounts of money or a large number of shares and watch them increase in value with time.

How to Invest in Mutual Funds

If you are someone planning on investing in mutual funds for the first time, you will know that it all tends to get a little confusing. After all, there are a lot of conflicting opinions and articles about mutual funds out there. Any newcomer can get blown away by the sheer amount of information on what mutual funds are and how they work. Truth is though, once you do a little research, mutual funds and its schemes aren’t that difficult to follow.

What is a mutual fund?

The concept is rather easy. It is a pool of money that is gathered by collecting investments from other investors like you. This money is then used to buy stocks and other securities. The securities, in turn, bring home profits that are then distributed amongst the investors depending on how much they invested initially. There are a lot of different mutual funds out there, though, and some of them even help you reduce taxes instead of getting you profits from securities, which are also known as dividends. 

How to invest in mutual funds

Once you understand the basic concept, the how of the matter becomes far easier to handle. The idea is to simply choose a scheme that is most suited to your needs and demands. You know mutual funds are pools of money handled by professionals to buy securities. These securities all work differently, though, due to the sheer number of them out there. Money market, equities, and bonds will get you different kinds of dividends within different lengths of time. If you are planning on saving up for your retirement or your children’s education and subsequent marriage, you will want to invest in long-term schemes. If you are just looking to get some extra cash on the side every few months, you should invest accordingly.

Are there any risks involved?

A lot of people say that mutual funds are risky and tend to make you wonder if you are going to get your money back. But as long as you plan well and, with risk diversification, you can easily mitigate the risks of investing while earning extra money. Just keep a few things in mind while investing in a scheme:

1.       Choose a scheme that aligns with your objective. If it is your retirement or other long term objectives, invest accordingly.

2.       Know that your fund will invest in multiple securities and not put all your money in one place. So, even if one scheme fails, your money is still safe

Know that the funds are handled by trained professionals. Their job is to make sure you get your dividends and they use their expertise to do just that.