WHAT ARE MUTUAL FUNDS
Mutual funds allows all investors, including those with minimal/no knowledge about equities, bonds or securities, access to a diversified portfolio.
A Mutual Fund pools money from numerous investors with a common investment objective. This money is invested by Mutual Fund companies, better known as AMC, into various capital market instruments such as shares, debentures and other securities, based on fund’s objective. For example, an equity fund would invest in stocks and equity-related instruments, a debt fund would invest in bonds, debentures, etc, while a hybrid fund will invest in both equity and debt instruments. Each investor is allocated units at the time of purchase based on fund’s Net Asset Value (NAV) on the purchase day. The income earned from these investments and/or the capital appreciation of these investments is shared by the unit holders in proposition to the number of units owned by them.
BENEFITS OF MUTUAL FUNDS
1. Create Wealth:
By starting early, an investor can take advantage of time and compounding interest, the combination of which can multiply one’s wealth beyond imagination.
2. Power of Compounding:
The rule is simple, the sooner you start, the more time you give to your money to grow.
3. To Beat Inflation:
Inflation beating returns play a vital role in improving one’s financial circumstances over the period of time.
4. To Save Tax:
Returns on Equity Mutual Funds attract short term capital gains of 15% on SIP/Lumpsum, if the investment is redeemed within 12 months. After one year, the returns are tax free.
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