In the case of mutual funds, the money is collected from the investors and is invested in the market on the behalf of the investor. It will usually charge a nominal fee for the money management. It is an ideal investment option for those who are not regular investors and does not have much idea about investing. The expenses incurred by the mutual fund scheme is called the expense ratio. It measures the fund management per unit cost. The mutual fund scheme could be chosen by you according to your financial goal.
Ways to invest in the mutual funds
The investor can either use the service of the mutual fund advisor or invest directly with the mutual fund. If you opt to invest directly, then you can invest in the direct plan of the mutual fund scheme. On the other hand, if you choose to invest with the help of an advisor then you can invest in the various regular plan of mutual fund scheme.
If at all you plan to go ahead directly and invest, then you should visit the official website or the mutual fund’s authorized branches. You also need to have all the relevant documents in hand. The advantage of going for the direct plan is that you will save on commission charged by the advisor and the money invested will add on to the sizeable returns with the passage of time. But all the work like doing the research, completing the formalities, monitoring the investment, etc has to be done by yourself.
Various types of funds to choose from
You can broadly classify the mutual funds into 4 main categories such as Equity mutual funds, the Hybrid mutual funds, Debt mutual funds, and solution-oriented mutual funds.
Equity mutual fund scheme- Under this scheme, the money gets invested directly in stocks. It can offer you a very high return but at the same time, it is quite risky in a short period of time as the return is depended on the market performance of the stocks. Investors always should go for the tenure of more than 5 years in this scheme in order to get a good return.
Debt mutual fund scheme- Under this scheme, money is invested in debt securities. If you are looking to achieve your short-term financial goals which are below 5 years, then you should choose this scheme. They provide modest returns and are much safer when compared to the equity schemes.
Hybrid mutual fund schemes- The money is invested in both debt and equity and the investor can choose the scheme on the basis of his risk appetite. If you are ready to take up risk, then you can choose the scheme wherein the money invested in equity will be more and comparatively less share of the fund in debt instrument.
Solution-oriented schemes- This scheme is designed for specific goals or solutions like child’s education, retirement, etc. It comes with a compulsory lock-in period of 3 or 5 years. It is quite helpful for people who have long-term financial goals.