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                    Money matters

Chapter 2:

Mutual Funds:

What are mutual funds? Some say they can earn you money, but how do they do it? Do they buy equities, shares, bonds, or any other kind of assets? Before delving into that, it is important to understand what mutual funds are and how they work. To comprehend this, consider a situation where you are planning to reach a specific destination. Before embarking on the journey, you need to know how to drive the car, the routes to take, and ensure your safety. However, if you face difficulties in reaching your destination, you would seek out a car or other mode of transportation, shifting the responsibility of reaching the spot to an expert who has agreed to take you there.



Mutual funds collect funds from investors and entrust them to financial experts who understand the market well, preventing losses for their customers. This can be a better option for those looking to invest with minimal risk. However, readers may wonder about the risks involved. While mutual funds are not completely risk-free, they do offer minimal risks. Money matters always come with certain risks that can impact your profits or losses. The advantage of mutual funds is that the collective funds from investors reduce the proportion of loss, while profits can increase significantly during market upswings.

 


The entity that establishes a mutual fund company is called a sponsor, with the primary goal of generating profits. Moreover, the money does not reach the mutual funds directly, but is instead maintained by the trust known as the Asset Management Company (AMC). The money collected from the investors is held by the trustees within the AMC, who are paid a certain fee called the AMC fee for their role in managing the mutual funds. The safety of the money is ensured within the trust, and in the event that investors lose their money, the assets owned by the owner of the mutual fund may be seized, and they could potentially face legal consequences such as being put in jail. The amount lost by the investors would then be returned to them through the seized assets. There are various kinds of mutual funds, and some are listed below:

- Debt funds

- Equity funds

- Gold funds

- Liquid funds

- Hybrid funds, etc.

These will be discussed in upcoming blogs.


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