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A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.
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How do you make money in mutual funds?
Mutual funds primarily make money through sales charges that work like commissions and by charging investors a percentage of assets under management (AUM). The Securities and Exchange Commission (SEC) requires a fund company to disclose shareholder fees and operating expenses in its fund prospectus.
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What types of mutual funds are there?
- Money market funds
- Bond funds
- Stock funds
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What are the benefits and risks of mutual funds?
- Dividend Payments
- Capital Gains Distributions
- Increased NAV
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How to Invest in Mutual Funds?
5 Simple Steps to Invest in Mutual Funds Online
- Understand your risk capacity and risk tolerance. This process of identifying the amount of risk you are capable of taking is referred to as risk profiling.
- The next step is asset allocation. Once you identify your risk profile, you should look to divide your money between various asset classes. Ideally your asset allocation should have a mix of both equity and debt instruments so as to balance out the risks.
- Then you should identify the funds that invest in each asset class. You can compare mutual funds based on investment objective and past performance.
- Decide on the mutual fund schemes you will be investing in and make the application online or offline.
- Diversification of your investments and follow-ups are important to ensure that you get the best out of your investment.