A mutual fund is a type of financial intermediary that pools the funds of investors who seek the same general investment objective and invests them in several different types of financial claims (equity shares, bonds, money market instruments). These pooled funds provide thousands of investors with proportional ownership of diversified portfolios managed by professional investment managers. The term ‘mutual’ is used in the sense that all its returns, minus its expenses, are shared by the fund’s unitholders.

Mutual funds are safe if the investment is for the long term. The investor needs to understand the working of mutual funds and select the best scheme according to his/her analysis. The investor needs not to worry about the market fluctuations if the investment is made for the long term.

Firstly, the investor should know about his capacity to invest and his risk-taking ability. An investor can invest directly in a direct plan through an asset management company or a broker for regular plans. The investor also has the option to choose the type of investment, i.e. SIP or lumpsum.

The investor needs to know his goals to invest and determine the expectations from the investment. Then select the fund type and the size of the fund. The investor should go through the past data to know the return generating capacity of the fund and also go through the predicted forecasts of the selected schemes.

Mutual funds provide liquidity and diversification in investment. They are managed by experts/ fund managers and are cost-effective. Mutual funds allow the investors to invest in small amounts at their convenience. The risk and return balance are maintained by the fund managers. Therefore, mutual funds are one the best options to choose when the investor is unaware of trading in the stock market.

There is no minimum limit to invest in mutual funds. The investor can choose any amount and start investing at any time. This is one of the best features of mutual funds.

Earning returns and generating wealth are different. Through investing in SIP, an investor can generate wealth and earn returns as well. SIPs are for long-term investment which helps in creating a capital appreciation to the money invested in the mutual funds.

SIPs are Systematic Investment Plans that allow the investor to deposit money with the fund manager periodically. The lumpsum investment allows the investor to invest a bulk amount in a specific scheme in one go.

No investment is risk-free when it is related to the market. The predictions can help the investors to cover the risks but any uncertain factor can affect the market which can affect the prices of the funds. Therefore, mutual funds are subject to market risks.