In this article I will be writing about the basic concepts of investing in the share markets and mutual funds. Nowadays investing in the shares is very easy because of the online trading accounts. I will write series of article about share trading and various techniques involved in the trading, so keep reading our future articles. In this post I will write very basic things about the stock market and mutual funds. As every one knows about the share market, I am starting with explaining What is Mutual Funds? in the next section. If you have any doubts please post it in the comments section. Please subscribe to our future articles here.
What is Mutual Funds?
For example, if you want to invest some amount of money into the stock market. What you have to do, directly invest the money into your preferred shares. Here you have to take the own risk of analyzing the best performing companies and find the suitable time for the investment. It is difficult for everyone to become master in the investments. The risk involved in share trading is much higher.
To help the investor, a company will collect the fund from investors and they will be investing in their preferred company. They have expert team for analyzing the market and the risk involved in this investment is low compare to the direct investment in the shares. Now you have the question, how to choose the best mutual funds company?. You have compare the statistics of many companies and choose the best one based on the good returns.
What is Systematic Investment Plan(SIP)?
SIP is one type of investment options available in the mutual funds. Instead of investing at one time, you can invest in the period of time. For example, once chosen the Mutual Funds scheme, you have to decide how much money and what frequency you want to invest. It will be like every month Rs.2000 investing on the particular mutual funds scheme. This type of investment is called as Systematic Investment Plan(SIP). The following are the key benefits on the SIP:
- Rupee cost averaging. whenever the market moves down and Net Asset Value (NAV) of the scheme is lower, you end up buying more units of the scheme. If the market moves up, Net Asset Value (NAV) of the scheme increases and you will get less units of the scheme. Hence the average cost of purchase works out lesser.
- Savings in Small amounts.
- You can purchase units at a lesser cost
What is Systematic Withdrawal Plan(SWP)?
Through SWP a fixed amount or fixed number of units can be redeemed from your existing holdings at a predefined frequency and date. The proceeds of this redemption will be credited to your bank account.
What is Entry Load?
When you are investing the money into mutual funds, they will deduct the 2.25% of your investment as the entry load which they will be using for agent commission or any other expenses. For example if you are investing Rs.10000, the entry load will be R.225. So, your actual investment is Rs.9775. From August 1, 2009, SEBI announced that there is no entry load for the mutual funds. It is good news for the investors. The entire amount will be invested in the market.
I hope this article is helpful to learn about the very basic things on the mutual funds. In my future articles, I will be writing about the many techniques and specific mutual funds schemes. Keep reading our articles. If you have any doubts please post it in the comments section. I will meet you in the next article. Happy reading!!!
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