A Beginner's Guide
Introduction
Investing can seem daunting, especially for those just starting their financial journey. Mutual funds offer a relatively simple and accessible way to invest your money and grow your wealth over time. But what exactly are mutual funds? How do they work? And are they right for you? Let's dive in.
What are Mutual Funds?
A mutual fund is a pool of money collected from multiple investors and invested in various securities like stocks, bonds, or other assets. A professional fund manager handles these investments on behalf of all investors.
How Do Mutual Funds Work?
When you invest in a mutual fund, you purchase units or shares of the fund. The fund manager uses the pooled money to buy securities. The fund's performance is determined by the performance of these securities. The value of your investment fluctuates based on the fund's performance.
Mutual funds invest in a variety of securities, reducing the risk associated with investing in individual stocks or bonds.
Fund managers have expertise in selecting and managing investments.
You can start investing with a small amount like ₹100 or ₹500.
You can easily buy or sell your mutual fund units.
Mutual funds are required to disclose their holdings and performance.
Here is a table showing the estimated mutual fund investment growth for SIP of Rs. 2000 with 12.5% CAGR for different time periods:
Assumptions:
SIP of Rs. 2000 per month
12.5% Compounded Annual Growth Rate (CAGR)
Compounding frequency:
Monthly
No withdrawals or fees
Note: The estimated values are calculated using the formula for compound interest and may vary depending on the actual performance of the mutual fund.
This table clearly illustrates how the invested amount grows significantly over time due to the power of compounding.
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