All About Mutual funds – Find Information and Basics of Mutual Funds
1. What Is Mutual Funds ?
A mutual fund is a fund where many people invest in a common pool of money and that pool of money is invested in the stock market, bonds etc.
The funds are managed by professional fund managers.
Mutual = from many people
Funds = pool of money
The money pooled by a large number of people / investors is what makes up a Mutual Funds.
There are thousands of people who invest in the same mutual fund.
Mutual Funds seems tricky but they are very simple.
For Eg:- Suppose a girl wants to buy a Rs. 100/- chocolate box but her father gave her only Rs. 10/-. So she convinced her other friends to collectively buy the chocolate box. The kids collectively contributed Rs. 100/- (some more, some less) to buy the chocolate box. The kids then distributed chocolates amongst them according to their contribution.
2. Who manages Mutual Funds ?
The money is managed by ASSET MANAGEMENT COMPANY (AMC).
There are many asset management companies like,
- ICICI Prudential Mutual Fund.
- HDFC Mutual Fund.
- Aditya Birla Sun Life Mutual Fund.
- Reliance Mutual Fund.
- SBI Mutual Fund.
- L&T Mutual Fund.
- Kotak Mahindra Mutual Fund.
- Franklin Templeton Mutual Fund.
Every asset management company has many Mutual Fund Schemes for different kind of people depending on their goal, their risk factor etc.
Ex – SBI Mutual Fund has 100+ Mutual Fund Schemes.
There are thousands of people who invest in the same Mutual Funds.
3. Now, who will take decisions on which stock to buy, how much to buy, when to buy. when to sell?
To every Mutual Fund, there is a manager, called FUND MANAGERS, who will take decisions like which stock to buy, how much to buy, when to buy, when to sell!
The fund manager is experts in this field.
That is why Mutual Funds are professionally managed funds in which you as an investor does not have to do any research work.
4. Charges In Mutual Funds ?
The main benefit of investing in mutual funds is that you get professional and expert money management by the fund house.
For this, they charge a fee that takes care of their compensation as well as the other investment-related expenses.
Let’s have a look at all the expenses that is usually charged with Mutual Fund Investments.
A. Expense Ratio –
Mutual funds manage your money and in return they charge fees called an expense ratio.
Expense ration charged on annual basis.
B. Stamp Duty –
The stamp duty is charged at the rate of 0.005% on the investment value.
Stamp duty came into action recently from 1st July, 2020.
C. Service Fees –
There are many online platforms to invest in Mutual Funds.
There could be a transaction fee or service fee that may or may not be applicable by the platform that you may be using.
D. Exit Load –
When an investor exits from a Mutual Fund Scheme within a short span, an exit load has to be paid.
This fee is charged in order to discourage investors from opting out of the scheme too early.