Mutual funds
Mutual fund is a financial tool where the money collected from investors is invested in securities like stocks, bonds etc. The mutual fund house will have many funds and it will be managed by professionals, known as fund managers. Mutual funds will have an expense ratio, it's the fees the investor will be paying to the fund house for managing the fund. There will be an exit load if mutual funds are redeemed within the minimum investment period.
Types of mutual funds,
- Equity
- Debt
- Hybrid
- Index funds
Pros
- Funds are managed by professionals
- Diversification
- Minimum investment amount
Cons
- High fees
- Exit load
Index funds
An index fund is a type of mutual fund. There will be index in stock exchanges, like Nifty 50 in NSE, Sensex in BSE. Nifty 50 will have 50 stocks and each stock will have it's own weightage in the index. The funds collected will be invested based on the stock's weightage in the index. The fund managing cost will be low since the fund manager need not decide which one he/she should buy as it is based on the stock's weightage in the index. Index funds are passively managed funds.
Pros
- Low managing cost
- Good long term gains
- Diversification
- Minimum investment amount
Cons
- Low returns in short term
- Cannot be eaily bought like a stock
Exchange Traded Funds (ETFs)
ETFs are mutual funds that are traded in stock exchanges just like a stock. Exchange traded index funds are just index funds that are traded in stock exchanges. One can buy these just like buying a stock in the stock exchange. Niftybees is a famous ETF managed by Nippon India Mutual fund. It consists of Nifty 5o stocks. Bankbees consist of Nifty bank stocks.
Pros
- Can be bought just like a stock
- Good long term gains
- Diversification
- Minimum investment amount
Cons
Investing in ETFs will be suitable for many people. Investing in Nifty 50 ETF as a monthly SIP (Systematic Investment Plan) over a long period of time may generate a good amount of wealth. Open a Demat account with India's No.1 Stockbroker, Zerodha and start your investing journey. Account opening is completely online and very quick. Click here to open an account.
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