What Are Mutual Funds and How to Invest in Them?

What are Mutual Funds and How to Invest in Them

Everyone wants to invest their money in a place where they get good returns on their money and it is 100% trustworthy. You must have heard the name of mutual funds where you are guaranteed to give good returns.

You must have seen many advertisements of Mutual Fund on TV. In today's blogpost, we are going to learn about this topic. If you also want to know all the information about Mutual Fund, then read this blogpost till the end.

In today's post, we will know what is Mutual Fund, how does it work, the history of mutual fund, what are the advantages and disadvantages of mutual fund, how to start investing in mutual fund.

What is Mutual Funds?

Mutual Fund is a group of people who manage people's money and after a period of time returns their money to the people with fixed interest. In this group, the job of managing people's money is done by the fund manager.

One who keeps investing people's money in different places from time to time and after getting profit, withdraws his share and returns their money to the people.

Mutual funds in the stock market are also full of risks for investors because there are ups and downs in the stock market, but mutual funds are considered less risky than investment in the stock market. Which is your favorite mutual fund? Do tell us by commenting?

Mutual fund is a group of some people where many investors come together and give their money to this group. Here the money of all the investors is managed by the fund manager for a period of time and on getting the profit, the fund manager deducts his commission and returns it to Nivesco. returns their money with interest.

Who Manages Mutual Funds?

The scheme of any mutual fund is operated by a manager. Every mutual fund has a fund manager who manages the investor's money. From time to time he invests the money in share market, money market, boards, commodity market etc. And after getting profit, after withdrawing his fees, he returns the money to the investors.

Mutual Fund is a group where the money of all the investors is collected and the fund manager tries to get profit for the investors from that money. It is the responsibility of the fund manager to manage all the money in the mutual fund. All mutual fund schemes are made in such a way that every investor can get good benefits.

How does a Mutual Funds Work?

After knowing so much information about mutual funds, this question might have come to your mind that how do these funds work?

See, almost everyone wants to earn money by investing in the share market, but due to lack of time and lack of knowledge of the market, they cannot earn money from the share market, hence mutual funds have been created for these people.

Those who have a fund manager inside them, they manage the invested money and try to earn profit for the investors in every situation. After a period of time, they deduct their fees and return their money to the investors.

The amount of investment in mutual funds is decided according to the units (NAV) on the basis of which mutual funds are bought and sold. Whatever money you invest, that many units will be credited to your account on the basis of the current NAV.

Types of Mutual Funds

Before investing in any mutual fund, you must know about its types so that you can make your investment in a better way.

1. Liquid Fund

Such funds invest in short-term debt instruments, hence they are also called money market funds. Due to investment in short-term debt, the investor gets good returns in a short time, which helps the investor to get good returns in the short-term. Hopefully Liquid Fund is better for them

2. Equity Mutual Fund

Equity funds are considered to be the most popular among all mutual funds, however, if an investor expects good returns in short-term from such funds, then it can be quite risky for him, but if you invest in this fund for long-term. If you look through this then you can get good returns from this fund.

3. Balanced Fund

In this type of mutual fund, investors' money is invested by dividing it. In such funds, the investor gets moderate returns. This fund is very good for those investors who use their money more.

4. Debt Mutual Fund

This fund is made for those who want regular passive income for themselves. Debt Mutual Fund is also called Fixed Income fund. These funds invest the investors' money in fixed income assets, hence the money of this type of fund is transferred to the cooperative society. Investments are made in bonds, etc., hence the risk in such funds is less but the return to the investor is also very low.

5. Hybrid Fund

Hybrid funds also work like balanced funds. You can get regular income from this fund also but the proportion of equity assets in them is less.

What is Direct Plan and Regular Plan in Mutual Funds?

There are generally two types of plans in mutual funds which are described below.

A) Direct Plan

Direct plan is a plan in which you invest directly in the mutual fund without any agent, then your expense ratio is less due to which the mutual fund is able to give you higher returns.

B) RegularPlan

Regular plan is that plan in which if you start investing in mutual funds through an agent, then your expense ratio is higher and in this type of investment you have to pay more fees.

What is Expense Ratio in Mutual Funds?

When you start investing in any mutual fund, you are told the expense ratio of that fund. This high expense ratio seems very low to you in terms of percentage, but when you invest in any mutual fund for a long period.

So it makes a huge difference to your investment and when the expense ratio is deducted from your investment then it seems very high, hence if you want to start investing in mutual funds then do it with Direct Plan only.

Ways to Invest in Mutual Funds

Generally, you can start investing in mutual funds in two ways.


Through SIP (Systematic Investment Plan), you have to deposit a certain amount in your favorite mutual fund during a time interval. This interval ranges from 15 days to several years. If for some reason you do not have money for SIP, then you You can also skip the installment of that month and you can increase or decrease the installment as per your convenience.

B) Lumpsum

During LumpSum, you have to invest the increased amount in one go in a good mutual fund. When you feel that you are getting a good return on your amount, then you can withdraw your amount but if you do not have much knowledge about the stock market. If yes, then you can incur loss in lumpsum investment because lumpsum investment is done considering the market situation.

Advantage of Mutual Funds

There are many benefits of investing in mutual funds which you must know about.

  • You can start investing in mutual funds with minimal money.
  • All the rules of mutual funds are under SEBI, which further increases the security of the investor's investment.
  • The money invested in mutual funds is managed by highly knowledgeable managers due to which investors get good returns.
  • Investing in mutual funds is much easier than the stock market. You do not need much market analysis.
  • In mutual funds, you can start investing in any scheme as per your convenience.

Disadvantage of Mutual Funds

  • There are many disadvantages of investing in mutual funds which you must know about.
  • There are ups and downs in the stock market due to which there is no guarantee of your returns.
  • Due to investment in mutual funds, you cannot invest in your favorite shares.
  • Exit load of many mutual funds is high. If for some reason you withdraw your money before the time period, then that exit load fee is deducted from your profit.


In today's blogpost, we have got information about what is Mutual Fund and how it works. If you found the information even a little helpful after reading the post, then please share this post with your friends. We hope that after reading this blogpost, After this you will not have to read any other post for information about mutual funds.

What is Mutual Funds - Video

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