WHAT IS A MUTUAL FUND?

WHAT IS A MUTUAL FUND?

A mutual fund is also a type of investment where you give your money to the fund managers of the mutual fund and they invest your money in stocks. Basically, when you don't have the time to pick the stocks or you don,t have much knowledge about how to pick stocks, you choose mutual funds for investing. First of all, the fund managers aren't anyone, they are well educated in their fields, mainly in the stock market, they have been doing this kind of work for a long period of time and when you give money to them then they will choose stocks behalf on yours, and instead, they will cultivate some commissions from you. So this is how mutual funds work basically.

TYPES OF MUTUAL FUNDS :

There are mainly two types of mutual funds out there, first actively managed mutual funds and the second is passive mutual funds( Index funds). Active mutual funds are, where there are some people behind the mutual fund that you have chosen, who will choose possibly the best stocks for you, this is called active mutual funds and the passive mutual funds are, where there is no one to choose the stocks for you, passive mutual funds are just trying to copy an index, an index fund like nifty50 or Sensex whatever it is, if you invest in an index fund then your money will automatically be invested in the top 50( nifty50) or 30(Sensex) company depends on the plan you have chosen. I will be talking about an index fund in another article, today I just talk about active mutual funds.

You can also categorize the mutual funds based on where they are actually investing like some mutual funds are investing in large-cap companies, some invest in mid-cap companies, some invest in small-cap companies, first of all, you have to understand what are these large-cap, mid-cap & small-cap. So basically, which company have the market capitalization over 20k cr, these companies are called large-cap companies, then mid-cap companies are the company, which company have the market capitalization between 5k cr to 20k cr & lastly small-cap companies are the company, which company have the market capitalization less than 5k cr. So, if you want then you can invest in large-cap, mid-cap & small-cap companies. There are some other types of mutual funds out there like equity and debt.

You always keep in mind that research has shown that 80% of mutual funds are not able to beat simple index funds, well this is an interesting fact about mutual funds you always keep in mind. 

EXPENSE RATIO:

It depends on the mutual funds you have chosen, but because these mutual funds are actively managed, their expense ratio is around 1% or 1.5%. So, make sure when you invest in mutual funds, you check the expense ratio, you might think this is not a big deal, but this will have a huge impact on your returns in the long run.

TAXES ON MUTUAL FUNDS:

Now let's talk about the taxes that are levied on you when you invest in mutual funds, basically, you have long-term capital gains and short-term capital gains. First of all capital gains means, let's say you invest 100000 rupees in mutual funds and you earn 10000 rupees, then this 10k rupees is your capital gains, so if your capital gains are less than 100000 rupees then you don't have to pay any taxes but if your capital gains are more than 100000 rupees then you have two types of different taxes, first one is if you hold up your mutual fund for less than 12 months then you will be levied about 15% taxes and if you hold up your mutual fund for more than 12 months and your capital gains are more than 100000 rupees then you will be levied about 10% taxes. So this is all about taxes that are levied on mutual funds.

HOW TO INVEST IN MUTUAL FUNDS?

If you want to invest in mutual funds or in stocks then you need a Demat account, nowadays it is very simple like you can create a Demat account by sitting your home, you just need to choose an app( Groww, Zerodha, Upstox, 5paisa, etc) in which you want to open your Demat account, you just need to do your KYC and your Demat account will be opened. I use the Groww app for investing because I don't need to pay any charges for using Groww.

There are lots of mutual funds out there but some of the best mutual funds are like Parag Parikh Flexi Cap Fund Direct-Growth, Axis Flexi Cap Fund Direct-Growth, IIFL Focused Equity Fund Direct-Growth, etc although these stocks are not the recommendations, I just started my investing journey and started from an index fund.........

These are the things I have learned about investing till now basically, I am not an expert, I am just a 19-year old boy who tries to learn investing through watching videos, reading articles, and reading books. I have been learning investing for the past 5-6 months and whatever I have learned, I try to share with all of you through my blogs.

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