Irrespective of you being a newbie or a seasonal investor or a regular investor, you might have overheard experts vouching for mutual funds as a rewarding investment option. They go on and on about the benefits of mutual fund investments. There’s no doubt that these investment options have a high caliber to generate significant returns and help you achieve your financial goals. However, are you well-versed with the working of a mutual fund? No, we are not talking about just understanding how to invest in mutual funds. Investing in mutual funds is more than that. This article aims on acting as a mutual fund investment guide and pointing you how your mutual funds work to make you money.
What are mutual funds?
A mutual fund is an investment vehicle where an AMC (asset management company) or a fund house pools the money of several investors to invest in various securities such as bonds, stocks, cash and cash equivalents, money market instruments, etc. This pooled investment is professionally managed by a fund manager. A fund manager invests it in a myriad of investments that suits the fund’s objective. These experts have in-depth knowledge and understandingof the markets.
There are different types of mutual funds to cater to the different needs of an investor. You can choose the one that best suits your financial goals, risk appetite, and investment tenure and ultimately compliments your investment horizon.
How can you earn money through mutual funds?
There are three diverse ways through which you can make money on mutual funds. They are:
- Income earned from interests on bonds or dividends on stocks–A mutual fund aims to pay out almost all the income it gets over the year by distributing it to their investors.
- Increase in the value of the fund shares- If the value of a mutual fund escalates, a fund manager can sell an investor’s share in the fund in the marketto make profits.
- Rise in the price of securities- Fund managers aim to trade the securities when their price increases. The profit made from this sale is referred to as capital gain. An investor receives this profit on redemption of the fund.
Over the past decade, mutual funds have gained immense popularity among investors and for all the right reasons. So, if you are looking to grow your wealth over a prolonged duration, then investing in mutual funds might be the right bet for you. If you wish to calculate mutual fund returns, you can use mutual funds calculator to estimate the future value of your mutual fund investments. A mutual funds return calculator is an investment tool which is offered by most fund houses and AMCs (asset management companies). So, what are you waiting for? Invest in mutual funds online today and grow your wealth. Happy investing!