WHAT IS A MUTUAL FUND AND HOW DOES SIP WORKS?
Understanding Mutual Funds:
Investors can get to purchase mutual funds ‘units’ that represent their share of holdings in a scheme. Investors can either buy the units or have them redeemed when needed for the fund’s current net asset value (NAV). Hence, investors participate or are involved in accordance with the loss or gain of the fund.
A mutual fund is an invest scheme that is managed professionally as it is being run a company involved in asset management. The company brings people together and forms a group where they can invest their money in bonds, stocks and other securities. A mutual fund receives money of investors and invests it for them. It usually charges a fee for the management of the money. Mutual funds are perfect investment mechanism for constant investors that have little knowledge about investing. Investors can get to select mutual fund scheme on the basis of their financial desires and begin to invest to achieve the desire.
A Mutual fund is an investment device made up of collective funds gotten from investors for investments. The collective funds of investors are invested in money market, bonds, stocks and other assets. Mutual funds are handled by money managers that invest the money of investors in a bid to make profits and income for investors. The portfolio of mutual funds is designed and maintained to be in tandem with the objectives of the investment as written in the prospectus.
A Mutual fund’s price is regarded as Net Asset Value (NAV) and it is determined the overall value of the securities in the portfolio which is divided by the amount of the outstanding shares of the fund. This price is not usually stable as there is always a fluctuation on the securities’ value held by the portfolio at the close of every business day. It should be noted that investors are not owners of securities where funds invest. They are only owners of shares in the fund.
What is SIP and how does it work?
Systematic Investment Plan (SIP) is a smart and easy process of investing money in mutual funds. The SIP ensures an investor is able to invest a certain amount at a regular interval. SIP is created to ensure that investors develop the habit of saving and creating wealth.
System Investment Plan is an easy and flexible investment plan. Money of investors is auto-debited from his bank account and in a particular investment mutual fund scheme. Investors are given certain amounts of units on the basis of the market rate that is ongoing for the day. This market rate is the NAV. Every time money is invested by an investor, additional units of the scheme are bought at the market rate and included into the account of the investor. Units are purchased at diverse rates and investors can get to benefit from Rupee-Cost Averaging and Power of Compounding. Investors can get to invest small amounts of money and watch it create wealth.