Following the collapse of the stock market around the world in the wake of the Corona. Since the share price of all the companies has become extremely cheap. So now many people are suffering from the confusion of whether it would be right to invest in the stock market with the help of mutual funds at this time. If you are one of them, keep reading today’s article till the end, because in today’s report you will know what exactly is a mutual fund thing? How does it work? Is it safe at all, what are its advantages and disadvantages and is Mutual Fund really right or wrong for you?
In a word, from A to Z you are going to know the whole thing about mutual funds through a report. So be sure to read the text once in a while. So first of all, what is the mutual fund thing? And how does it work? Imagine for a second you were transposed into the karmic driven world of Earl. What I did this time was to divide my entire company into ten parts, that is, 1000/10 = 100 rupees per share and listed the stock market. In other words, if someone wants to buy at least one of my company’s ten shares in total, then he has to buy 100 rupees. Now you want to buy shares of my company. But you have only 10 rupees in your pocket. Meanwhile, the minimum price of one share of my company is 100 rupees. As a result, even if you want to, you can’t buy because you have less than 90 rupees. Now there are 9 people like you who have the same problem, that is, they all want to buy shares of my company.
But in their pocket: Royet makes 10 rupees. Now suppose Chalak Chetan knows 10 of you and knows this whole story. So Chalak Chetan opened the Chalak Chetan Mutual Fund knowing what he did then. And he took 10 rupees from 10 of you and bought a share of my company by raising a total of 100 rupees. This is what the clever Chetan made the trouble of collecting money from 10 people and then the trouble of buying the share. That when you take your money, you have to pay one per cent of the money that each of you will get to the clever Chetan as his remuneration. In other words, the expense ratio of a smart conscious mutual fund is 1%. This time after 10 years it was seen that the price of each share of my company increased from 100 rupees to 200 rupees. That means your 10 rupees came out and 20 rupees. Now when you want to withdraw your money, according to the condition that the money you get 20 rupees. 1% of that 20 rupees means 20 paise Chetan Chetan deducted as his own salary and gave back 19 rupees 80 paise to you. That means after spending 10 rupees, after 10 years you got back 19 rupees 80 paise.
Hopefully, through this story, I have been able to explain to you what a mutual fund thing is and how it works. The next question is how secure the mutual fund is. This is that you handed over 10 rupees earned by your hard work in the hands of clever consciousness. What is the hope that the clever conscious will not run away with it? The point here is that Chalak Chetan has to get licenses from the Securities and Exchange Board of India (SEBI) and Association of Mutual Funds in India (MFI) before opening a mutual fund and these two organizations are constantly monitoring Chalak Chetan. So if you put your money in a bank that has run away with all the money, you may think that your money is just as safe as your money in a mutual fund.
Then if you compare mutual friends with banks in terms of interest, will you get a fixed percentage interest rate? But the money of the mutual fund will be invested in the share market. So you will not get any fixed percentage interest rate here. Interest rates will continue to fluctuate as the share price fluctuates. This is why it is called Mutual Fund Subject Market Risk.
Let’s see what good aspects it has! And what are the bad aspects! On the plus side, it simply came to our notice then. Anyone can easily understand the whole thing. It is very easy to invest in accessibility mutual funds these days. Anyone can invest directly in a mutual fund in just a few minutes sitting at home. In the case of high-quality mutual funds, the interest rate is not as fixed as that of the bank, but in most cases, the mutual fund interest rate is higher than that of the bank. Mutual fund returns are approximately 10-15% whereas banks offer approximately 7% interest. COMPOUND EFFECT Simply put, starting from just 1 taka, if your money continues to double every day for the next 30 days, then after just 30 days, that one taka will increase to about 54 crore taka. And this compound effect works in the principal mutual fund.
DIVERSIFICATION: When you invest in the stock market through mutual funds, your entire money will be invested, not in one or two companies, but in different companies in different sectors. As a result, even if some companies lose money, the chances of other companies becoming profitable become less rich.
VARIETY: You want to take a rickshaw like low medium-high. Accordingly, you can invest in different types of mutual funds as you wish.
AFFORDABILITY: You can start investing in a mutual fund for just Rs.500.
LOW EXPENSE: If you want to personally invest directly in the stock market, you need to open a trading + Demat account. As a result, there is a Brokerage Charge in every transaction along with the Annual Maintenance charge and you have to pay. On the other hand, if you make a direct investment in a mutual fund, you will not have to bear either maintenance charge. You just have to pay the Expense Ratio of the fund. And in the case of direct planes of most mutual funds, the expense ratio is below 1%.
PROFESSIONAL MANAGEMENT: Of the thousands of companies in the stock market, which company’s share price is going to rise in the future, a stock market expert must be able to predict better than the average person like you. One or more people are appointed as font managers in each mutual fund. One of them is a stock market expert. As a result, all the recharges and analyses are done by an expert team on your behalf. It also charges only a 1% Expense Ratio.
Flexibility: Mutual funds are basically of two types open-ended close-ended. You can withdraw as much money as you want from an open-ended fund, just like a bank savings account. However, in most cases, if you want to withdraw your money before 365 days, you have to pay 1% as Exit Load. And if it is a close-ended mutual fund, then there is a locking period. For example, if the locking period is before 3 years, then once you invest your money in that mutual fund, you will not be able to withdraw before 3 years. This is why this line is called please read the offer document carefully before investing.
Many good aspects have been mentioned, now I will say a few bad aspects.
The bad side of a mutual fund is that the number one risk is that the money of the mutual fund will be invested in the stock market, so the risk is always the same.
LIMITATION: As per Government of India rules, no mutual fund can hold a maximum of 10% cash. As a result, even if the cash flow in a fund continues to increase at a time when the market is going up, the fund manager is forced to buy more expensive shares and release the cash at that time. On the other hand, if the cash flow in the fund does not increase at this time as the market is going down, the fund manager cannot buy new shares at a lower price despite knowing that there may be profit.
SELF-GUIDED: You have to decide when to enter a mutual fund and when to exit. The fund manager does not have the power to guide you because the fund manager only has the power to buy shares at will. But unless you want to get your money back on your own. Until then, the fund manager will not be able to sell the shares and withdraw your money from the mark. As a result, even if the market collapses, if you still do not want your money back, the fund manager will have to sit quietly.
But let’s take a look at what mutual funds really are for you. Mutual funds are important to you only when you have a basic knowledge of the stock market. This means you have to choose which mutual fund is right for you and you have the knowledge to know when to market and when to come out. Number two The money you are going to invest is not any money you keep as an emergency fund. As a result, even if you lose more or less, it will not affect your daily life. Number three gives you the daily stock market fluctuations. There is no such thing as time skill and desire to do different stock analyses. But you want to invest in stock market money.
Only if all three of these methods apply to you. But mutual funds are right for you. Or in my opinion the wrong move.