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Mutual Fund Plain-Speak

Investing in mutual funds has its positives and negatives

What is a mutual fund? How to invest in it? Enlighten on this subject.

There are two ways of investing; one is that you do so by directly investing in share market by means of purchasing shares directly. When you put money in a bank account then it is lending money to the institutions. Similarly, when you purchase bonds then it is basically lending to institutions. When you invest through mutual funds then it will be investing on your behalf. There are two types of funds: equity funds that invest in stock markets and then there are bond/debt/fixed income funds.

There are two positives and one negative for investing in mutual funds. One you get professional management. A qualified person is given the mandate to invest your money in the market in a professional manner. And the second positive is that you get instant diversification. As each mutual fund invests in many places, your money gets instant diversification which is not otherwise there.

The negative part is that for all these benefits you need to bear some expenses. Approximately, you end up spending two per cent as costs - the same expenses are less in fixed income funds.

To buy mutual funds you can contact your nearest mutual fund agent. This you can find via the http://amfiindia.com website and using your pin code you can get address of the nearest mutual fund agent.

I have been holding an ICICI Pru scheme for the last three years. I had invested about Rs 54,000 and the agent informs me that it now stands at Rs 59,000. If I stay invested for 4-5 months more, will it be beneficial? If Sensex reaches 16,000 points, then how much will I get?

If you are expecting 5 per cent gains then you must expect a fall of a similar amount too. If withdrawing right now helps you to fulfil a goal or target then go ahead. Withdraw this amount without contemplating any further.

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