Is Investing in Mutual Fund Really Profitable?

Is Investing in Mutual Fund Really Profitable?

By- ISHANK RAVI | TheLearnEarn | 19/02/2019

The most popular question which revolves around the young or first time investors even existing investors is whether investing in mutual funds really profitable??

                So let me give you a very brief answer for this question and to do so let’s understand what we mean by the term investment. Investment is a tool which is used to generate future income and to generate income it is important to identify investment tools which drive future income, these investment tools could be Equity Shares, Mutual funds, Bonds, Real estate, etc.

Let us understand what mutual funds is but to do so we must know what Equity shares are since Equity shares are the major building blocks for the mutual fund.

Equity shares are basically part owner ship of a company and mutual funds comprises of government/corporate bond and equity shares.

In other words we can say that mutual fund is a pool of fund which is managed by a fund manager.

And a fund manager is one who invests the money with him in government/corporate bond and equity shares depending upon the fund type. So now let us understand the types of mutual funds available in India.  

Types of Mutual Funds:-

1. Equity Funds

2. Fixed income

3. Fund-of-Funds

4. Specialty Funds

5. Index Funds

6. Balanced Funds

1. Equity Funds- Equity fund or Stock mutual funds solely invest in stocks/equity. These funds have the capability to deliver maximum return but at the same time risk is also the most in such funds. 

2. Fixed income- Fixed income funds or bond funds have the characteristics of paying regular dividends to its investors over time it can be monthly, quarterly or yearly. These funds mostly invest in bonds it may be government or corporate bonds. Fixed income fund or bond fund is very good source of investment for one who wishes to receive regular payouts.

3. Fund-of-Funds- Funds of funds is a hybrid investment where the fund manager invests in different funds rather than taking direct exposures. The returns of such funds are mostly dependent on the performance of other funds. Fund of funds can also be referred as multi manager investments, returns on investment is moderate and considered to be one of the safe investment tool.

4. Specialty Funds- Specialty funds or sectoral funds are funds which invest in specific sector or industry. This fund is mostly industry specific like oil and gas, automobile, metals, FMCG, pharmaceuticals, etc. This fund is commonly known as thematic funds since the fund follows the principle of thematic investment strategy.

5. Index Funds-  Index fund is fund which performs the same way a particular index performs which means Index funds invest in such a way that it try to follow the same portfolio allocation which a particular index acquires. Index funds are suitable for investors who want funds with low cost and without much dependence of fund on fund manager.

6. Balance Funds- Balanced funds or Hybrid Funds are the combination of stocks, bonds and money market instruments. Balanced fund is a mixture of safety, income and capital gains. Best recommended for moderate risk takers.

These funds are best for taking care of post retirement needs.

Now comes is investing in mutual funds^[2] really profitable? So lets us understand the concepts of mutual fund. Mutual funds is a platform for individuals with no or less knowledge of the financial markets or one who cannot give time in identifying profitable stocks. Here comes the major role of fund manager who takes such critical decision on there behalf and invest his time in selecting such stocks. So who is a fund manager ?

A fund manager is one who is appointed by the mutual fund house to take better informed decisions using his skills and knowledge which includes there experience. Second most important thing is that you should give adequate time to your investments to turn it into a tree full of fruits

Therefore I will suggest you to identify a good fund manager rather than popular schemes and definitely a big Yes investment in mutual funds are profitable if done wisely and to know my recommendation on mutual funds for 2019 click the link below ^[3]

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