How to profit on your Mutual Fund investments

In India, saving money is always something we are taught to do from a young age. We are not a society that lives on credit. We firmly believe that being cautious with our money is the best route towards success. However, due to this nature, we are not prone to invest in financial products that do not provide a good measure of security. It is for this reason that mutual fund investments are a big part of the financial market in our country. They allow us to generate some income from the money we invest, while still providing a lower level of risk when compared to other investment products.

The reason for the success of mutual funds in India is that the risk to individual investors is lowered simply because he is not investing alone. The funds operate by obtaining capital from multiple investors and then investing the total amount into various equities and securities. The rate of return on the funds depends entirely on how the fund is managed and where the money is being invested. Usually funds that invest either entirely or mostly in equity, yield a higher rate of return but are also higher in risk due to the fact that they are affected by changes in the market. Meanwhile funds that invest in long term security, such as government bonds, offer a much lower risk but also offer much lower rates of returns to the investors.

In order to determine the rate of return for investors, mutual funds sell units within the fund to investors, based on the money they put in. The value of each unit is known as the net asset value or the mutual fund NAV. The more units an investor purchases, the higher are the returns he receives. The value of these units may fluctuate based on market conditions and on how well the fund is doing due to these conditions.

The funds also vary in terms of time-period. It is therefore very important for the investor to know before he invests how long he can invest his money for. Usually, most equity funds are of a shorter term than those that invest in long term securities. In fact, investors should take a lot of factors into consideration when investing, such as how much they are willing to invest in total, whether they can invest regularly in the fund, if they choose an SIP fund and also the amount of risk they are willing to take with their investments.

Mutual funds are usually managed by fund management companies or by fund managers, and they provide with a prospectus that contains all the details of the fund. The objective and goals of the funds are all mentioned in this document and it is important for an investor to understand every aspect of the document so that they know how the fund operates and how their money is being invested.

It is important for investors to get professional advice before investing in the funds because they are not as well versed with the market conditions as professionals. However, they should be aware that it is their financial objectives that are important and that it is their money that is being invested and so should insist on courses of action they best feel realises these goals.