We’re back this time with a list of frequently asked questions about mutual funds being addressed in a simple and straightforward way.
Q. If they are pooled investments into various securities, how do I know a buy price?
A. Every investor is given units depending on his investment amount and these units have a price, also known as the NAV attached to it. So, if you invest Rs. 10,000 into a scheme which has an NAV of Rs.10, you would receive 100 units for your investment. As the value of the underlying securities in the scheme rise, the investor benefits from the appreciation of capital of the units.
Q. But how easy it to invest and how much do you need?
A. Investments into mutual funds can be made through a mutual fund distributor with very minimal paperwork or directly at the asset management company. Subsequent investments can even be made online for as low as Rs. 1,000 which makes it a very affordable and attractive investment vehicle.
Q. Can I get back my money quickly in case of a requirement?
A. These units are also relatively liquid and you would be able to exit without a large waiting time (approximately 1-10 days depending on the scheme) for getting back your money.
Q. What other advantages do I get from investing in mutual funds?
A. Mutual funds are typically used as wealth creation tools (equity mutual funds) as they return more than the inflationary rate over a period of time. You also benefit from diversification – your money being invested across various asset classes and securities – and its management by a professional. It is also more tax effective than many other investment products in the market. With the different kinds of mutual funds available, there is one to suit practically every need of an investor. So, identify your goals and you needs, take a step forward and enter the world of investing and wealth creation.