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The Art of Mutual Fund Investing

For an investor investing in the mutual Fund is often considered as one of the easiest mode in investing as it definitely helps you in investing you across various asset classes. Just pool funds from multiple investors and then you can start investing on your behalf because the mutual funds have diversified benefits like if one asset underperforms than the other asset may outperform and thereby make for the loss. It is a very good instrument where the money collected is invested on your behalf, money is pooled from the multiple investors and now it is a huge investible amount in the kitty which makes it lot simpler for you to tap in the multiple assets.

 The brighter part of it is that the mutual fund scheme is managed by a professional fund manager who is well versed by the ins and outs of the market pulses and just like any new investor who is unaware of the loopholes and the bottlenecks this is the best way and the new investor can opt for this service and take its benefit. Whenever one invests in the mutual funds he is issued ‘units’ of the scheme just like investing in stocks and thereby becoming a share holder.

The mutual fund entity is setup altogether as a separate financial entity which is called a ‘Trust’ having two key players the sponsor and the other is the Asset Management Company (AMC). Actually the sponsor is the key person in raising money from the public for investment in the scheme and it is the AMC which decides the various assets this money should be invested in. It is a matter of habit everywhere whether success or fitness so even here too one must make it a disciplined habit to invest and also fix your investment objective so as a new investor it would always be better to choose Systematic Investment Plan (SIP) which enables you to invest in a fixed amount of money every month on the asset of your choice in various market cycles this not only allows you to spread the investments over a said period of time instead of doing lump sum investments.

The investor can buy mutual fund shares either from the agents or from the fund houses or from the exchanges but in this case the price of the mutual fund may not be synchronizing with the net asset value. Then there are two ways to earn from a mutual fund one is thee increase of the fund and the underlying assets and dividend payments, since the fund value is linked to net asset value. So when the NAV rises the value of the fund also gets appreciated.

You also tend to earn better profits because you earn more as your profits keep on increasing with the length of time and is called in other words the power of compounding The mutual funds are traded on the basis of net asset value (NAV) of the fund which is simply calculated by adding the value of all the securities in the fund and dividing it by the number of units issued. Certain mutual funds can keep issuing with no limit on the units throughout the cycle of the of that fund and such funds are called open-ended funds and certain mutual funds have a fixed number of units for issuance and are called closed-ended funds.

 There is a lot of choice in mutual funds as per your investment objective income/debt funds, growth/equity funds and balanced funds. Equity funds are more likely to yield higher returns over a long period of time and this is the only reason why the growth funds are usually invested in equities conversely the debt instruments like bonds are known for the safety and regular income through interest payments and so the debt funds are known as fixed income funds and are low risk funds literally. On the other hand if the fund is invested in the mix of both are called balanced funds with a average risk and promise not only the regular income but also the returns. So this is one of the very effective ways to keep cruise control of your investments.