Video Producer: Anubhav Mishra
Video Editor: Purnendu Pritam
When we talk about financial investments, one of the first things that comes to mind is mutual fund investments. Mutual fund investments are the talk of the town these days. Whether it’s your colleagues, associates or people you meet at a party, everyone seems to be excited about mutual funds. But, they are not experts and hence, often have incomplete information.
In this episode of Dhan Ki Baat, financial expert Gaurav Mashruwala will demystify the concept of mutual fund investment for you.
What Are Mutual Funds?
Let’s try to understand this with an example. Suppose you decide to go on a trip with your friends but are unable to decide upon the destination. So, you go to a tour operator, who as per your preferences and budget chalks out a tour plan. The operator also takes care of all the arrangements that need to be made and since, the tour was planned for a group of people rather than a single person, it is less expensive for you.
Mutual funds also work along the same line. In this analogy, a mutual fund is a tour operator, who picks a right fund for you, manages it, and it is less expensive than other investments.
Another thing that is important to understand is that you don’t invest in mutual funds, you invest through mutual funds.
Types Of Mutual Funds
Mutual funds investments are typically of three types – equity fund, gold fund and debt fund.
Let’s start with equity funds. Under these mutual fund schemes, your invest in share market. Under gold funds, as the name suggests, you invest in gold. The value of your investments rises or dips based on the value of gold in the market. Debt funds involve those mutual fund schemes that invest in bonds, government securities etc.
If you think that investment in just one type of fund may be too much of a risk, you can try hybrid funds. These are schemes in which your investments are done through a combination of different mutual fund schemes. For example, if you have a part of investment in equity fund and another part of it in debt fund, then it’s a hybrid fund.
Mutual Funds Don’t Guarantee Solid Returns
Most of the people just assume that mutual fund schemes are sound investments where a good return is guaranteed. However, this is not entirely true. Suppose you invested in gold fund. If the cost of gold drops, then your investment will yield a negative return.
But, if you keep investing in the mutual funds on a regular basis over a significant period of time, the likelihood of a good return increases.
Mutual funds schemes are regulated by SEBI (Securities and Exchange Board of India). There are checks and balance in place by this regulatory body to ensure that the company or experts managing your mutual funds don’t make independent decisions as per their own will.
If you have any questions about personal finances, do send them to us at dhankibaat@gmail.com. Financial expert Gaurav Mashruwala will take them up every Thursday.
(The Quint has given up the use of plastic plates and spoons. This Earth Hour, what will you #GiveUp to save the planet? Use the hashtag #GiveUp and tag @TheQuint to tell us.)
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)