Mutual Fund as Investment Option
Saving is a habit that should be adopted at very young age. Saving money and investing it can help you financially in future. Little amount of savings can turn into a huge amount if investment is done in a good way. It is one and only way to make future better. Investment allows builds a steady income stream before retirement. Only saving will not be enough to cover up future financial needs. Those are old days when people give importance to only saving not investment. In this era investment is must to touch needs that may occur in future. Savings only keep your income save but investment helps generating an additional income.
Let’s talk about a very simple and interesting way of saving and investment method today, which is very familiar for all of us. That is Mutual Fund. Many of us know what is mutual fund and how it works but for beginner Mutual fund is still complicated. Hence I try to simplify it for all at its very basic level. Let’s understand Mutual Fund first - Mutual funds collect money from the investors and use that money to buy other securities, usually stocks and bonds. Very importantly this fund managed by a professional fund manager. Small investors or an individual cannot invest a small amount by themselves directly in the stock and bonds. But mutual fund gives that opportunity to all such investors to invest a minimum amount. Mutual Fund collects money from a number of investors who share a common investment objective, and invests the money in share, bonds and other securities. Each investor owns units that represent a portion of the holdings of the fund. The gain or income generated from this collective investment is distributed in proportion amongst the investors after deducting certain expenses by calculating a scheme’s Net Asset Value or NAV.
👉For example, if 10 people want to invest in security value Rs 10 lakhs, and all 10 people invest 1 lakh per. If value increases up to Rs. 20 Lakhs, the profit will distribute among those 10 people.
✅Now let us understand about NAV. NAV of an investment company is its total assets minus its liabilities. For example if an investment company has total assets that is including its securities and other assets is worth Rs. 10 crore and liabilities Rs. 1 crore then its NAV will be Rs. 9 crore. So, in simple words NAV is the market value of the securities held by the scheme. Mutual Fund invest the fund collected from investors in security market, since market value of securities changes every day NAV also varies on day to day basis. The NAV per unit will be the market value of securities of a scheme divided by the total number of units of the scheme on a particular date.
For common people Mutual Fund is one of the best investment options because it offers an opportunity to invest in a diversified bunch of securities at relatively low cost and also professionally managed.
Because Mutual Funds are managed by professional fund managers and investors will benefits from their research, experience and expertise that lower the risk of investment; and also diversification helps in minimizing risk.
Thus, Mutual Fund is a best investment option with good return in long term.
