Mutual Funds: Basic Understanding

Investment can have many names and there is one name which is most popular among the investor and that is, Mutual Funds. This is very vast topic to understand due to which we will divide the topic into multiple parts. Today, we will try to find out what is mutual funds, understanding fees charged and what are the benefit. So let’s start..

Basics of Mutual Funds

A mutual fund is basically a company that lends money from the investors and invest in instruments like stocks, bonds, and short-term debt to grow. There is another term which is very important in Mutual funds is Portfolio which is defined as combines holdings in a particular mutual fund. In other words, Portfolio is comprising of one or more than one stocks.

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There is a team of professional which will handle all the activities of mutual fund such as investment of money is called as Fund Managers, apart from Fund managers capital market experts and financial analysts will also plays an important role to manage the funds. A portfolio of any mutual fund will be structured and maintained to meet the objective of investment. A fund manager, who manages the mutual funds, will apply their expertise to purchase stocks and reshuffle between them to increase the returns. From the point of view of investor, they own units which shows the holding of the funds.

Understanding Fees and Charges

Like every business, it also involves a particular cost which is pre-defined, and bifurcation is always written there. These costs will be passed to the investors in the form of annual fees, expense ratios, or commissions, which may affect their overall returns.

These fees may vary from funds to funds i.e. some funds charge high fees and some of them works with less fees. But it is not mandatory that funds with high fees will generated higher return. So be aware of that and choose the mutual funds wisely considering the fees structure. It is because small charged fees can made a large difference in the returns.

There are additional Mutual Fund Load charges which will be charged either at the time of doing investment (Entry Load) or at the time of exit from the investment (Exit Load). Exit Loads will apply with certain condition so that investor feels discourage from opting out of the fund scheme. There may be some additional charge so read the documents carefully to avoid any fraud or misunderstanding.