Mutual fund can help you to become a millionaire in the future. It is a type of investment made for a particular purpose such as money market, stocks, bonds and other securities often known as portfolios. The money is collected from different investors, also known as shareholders as a contribution to the work and profit or loss from the output is proportionally distributed among them. They may be individuals, companies or organizations.
This is considered as a traditional fast moving vehicle to multiply wealth in short period of time. First introduced in 1890, the Mutual Fund assets reached up to $40.4 trillion USD worldwide towards the end of 2016 as revealed by Investment Company Institute. United States is the largest company in the world in terms of mutual fund industries with assets up to $18.9 trillion. Similarly, countries such as Luxembourg, Ireland, Germany, France, Australia, UK, Japan, China, and Brazil are other notable names on the list. India is still developing on this field.
Now, if you want to get involved in mutual funds and learn the secrets behind becoming a millionaire, just keep reading this entire page. Also, I should warn you that investment is a risk. The chances of making or losing money are equal. And if you are not willing to take any risks, this is not made for you.
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Advantages & Disadvantages of Mutual Fund-
It has both advantages and disadvantages as compared to direct investment made in personal or individual securities. The advantages of mutual fund are:
- Mutual fund allows different varieties of investments for all large and small scale shareholders that decreases the risks of facing loss.
- The investment is supervised by fund managers that are highly professionals on this field. They research, analyze, buy or sell stocks to beat the market.
- It is transparent and easy to invest in mutual funds once you have determined the objectives.
- Investing in more than two stocks within one portfolio is possible in mutual fund.
- It is less expensive to invest on mutual fund with fair pricing as compared to direct investments.
- It is suitable and versatile for every type of investors.
With that, following are few disadvantages of mutual fund:
- Your manager may betray and abuse his powers to perform unauthorized and unnecessary trades to fix the books.
- The income is relatively less predictable and not guaranteed.
- Mutual fund has high government taxes liable and 12b-1 hidden fees.
- Government does not pays compensation against losses. There is no insurance for mutual fund.
What Are The Different Types Of Mutual Fund?-
Following are the different types of mutual fund:
- Money Market Fund: This type of mutual fund invests in short-term stable income securities also known as money market instruments. They are safer to deposit solely in cash but does not guarantees anything.
- Fixed Income Fund: Depending upon the amount of pay, these types of fund pay a return on regualar scheduled basis. For example, government bonds, high yield corporate bonds and investment-grade bonds.
- Equity Fund: This primarily invests in stocks according to company size, portfolio and geography. They grow faster but with high risk.
- Balanced Fund: It is based upon equity and fixed income fund to achieve higher income, safety and capital.
- Index Fund: It is designed to track the functioning of an specified index. They may clone indexes with special characteristics or broad market index.
Similarly, there are other categories of mutual fund such as specialty fund, fun-of-funds, income fund, bond fund, global or international fund, etc. Besides that, in closed ended MF, money cannot be cashed out before maturity and on open ended MF, you can cash out money anytime.
Note: Index is the calculation of a part of stock market.
How to Start Mutual Fund?
Mutual funds are controlled by AMFI (Association of Mutual Funds in India). In order to start investing in MF, you need to find an AMC (Asset Management Company) and fulfill Know Your Customer (KYC) requirements. You can read the KYC rules on this link. When you have done submit an ID proof, address and photograph electronically through ekyc website. You will also need to proof your physical existence through IPV (In-Person Verification) method. Plus you will need to research on the agency, its reputation, history, type and learn how to save tax.
Now there are different agencies and they have their own system of implementing MF. But after you have submitted your basic information as mentioned earlier including date of birth, real address and mobile number, it is compulsory to upload necessary documents including PAN (Permanent Account Number). All these information should be submitted through their online registrar platform or by visiting their office. They will also video call you for IPV through any webcam. Alternatively, if you submit AADHAR Card document information along with OTP (One Time Password), won’t require any IPV verification.
As a final step, you will be provided with a link to their official website where you can register for a new account. It will present you a simple form to get your details about making online transactions. It may ask you for your bank details. So always do the homework and be prepared. The agency will then take some time to verify you and soon they will inform you via call or email if you are ready to invest.
Please keep in mind that you will need to perform all these formalities yourself and if you try to cheat or do some tricks, you might get in serious legal troubles.
Some of the top mutual funds in India are DSPBR Opportunities Fund, IDFC Infrastructure, Birla Sunlife India, Tata India tax savings fund, Motilal Oswal Multicap, Kotak Nifty ETF, ICICI Prudential Nifty Index Fund, Reliance Monthly Income Plane and many more.
Now that you have learnt so much about MF, is there any additional doubt that needs to be cleared in your mind? Or maybe you might want to share your mutual fund experience. Either way, let me know what you’ve got in your brain. Just use the comment box below. Also be sure to read other useful information in our website.