I think it’s safe to say that most of us have dipped our toes in the stock market game, maybe we have a nice, healthy portfolio, well diversified across a host of sectors and industries. From hospitality to automobile manufacturers to defence to Indian banks and many more.

And keeping track of it isn’t exactly easy; you need to understand facts and figures and know when to sell and when to hold. And the stock market is so fickle, isn't it? One bad earnings report, one random global crisis, and suddenly your “well-diversified” portfolio is suffering, stock prices are plummeting sharply, and you are feeling very lost and maybe wishing you had a professional managing your portfolio.

Or that you hadn’t put all your eggs in the metaphorical stock basket. And that’s where mutual funds come in.

But what are mutual funds? How do they work? Let’s get into it.

Introduction To Mutual Funds

Even though I am sure most of us know what a mutual fund is, we’re hardly new to the game after all, but it never hurts to have a refresher, does it? To put it simply, mutual fund investment is a way for investors to come together and pool their money to invest in a diversified variety of stocks and other securities.

How it works is you buy units of a fund, say you choose to invest 100 rupees, and each unit costs 10 rupees, which means you own ten units. Of course, this is just an example, and people invest far more than 100.

How Do You Invest In Mutual Funds?

There are two methods to invest in mutual funds: the first is by investing a lump sum, which tends to be larger. Typically, a few thousand to a few lakhs, this is not a recurrent payment and is done just once.

SIP investment, on the other hand, is a repeated investment, on a cyclical basis and is of a much smaller amount. For example, investors may choose to invest 100 rupees every month in the mutual fund of their choice.

What Are The Benefits Of Investing In Mutual Funds?

There are many benefits to Mutual fund investments:

• Expert management: mutual funds are managed by qualified managers who sell and buy securities and are able to read the market to maximise gains
• Diversity: mutual funds are invested in a diverse range of securities from several companies and sectors
• Easier entry: due to SIPs being affordable, it is easier to afford a mutual fund
• Convenience: many fund managers offer a mutual fund app, making it easier for investors to manage their investments
• Easy liquidity: Mutual funds come with easy liquidity, that is to say, it is easy to sell and liquidise assets
• Tax benefits: There are many benefits to investing in mutual funds in india as they come with tax benefits

How To Invest In A Mutual Fund?

Most stock brokerage apps will have a section for mutual funds. You can browse the options and begin planning your SIP. However, it is important to ensure that your money goes through each month and will not cause your SIP to get cancelled. In cases like this, you can also set up Autopay payments for all your SIPs.

Conclusion

When choosing a mutual fund, you should consider several categories, namely how the fund in question performs against the benchmark, and against other mutual funds and based on your own risk tolerance. Also, find out what you can about the hedge fund manager’s expertise in the matter. If you choose a mutual fund carefully, it can be a great way to grow your wealth and diversify your portfolio.