As per definition of mutual funds, it’s a pool of money which is collected from different people and the corpus collected is invested in stock markets. The stocks selected are from the research analysis of the fund manager who shall invest these monies in the value stocks which he feels shall perform well and address the scheme objective.
Now what is stock? Stocks are equity shares which are traded into open markers (NSE & BSE) where the buying and selling happens. Stock prices are dynamic and change on daily basis. Hence, the mutual fund NAVs are dynamic and change daily as per the stock price change.
So the primary and significant difference between stock and mutual fund is that stock is concentrated only upon the performance of one corporate or public company whereas in mutual fund portfolio invests in various difference stocks hence your risks of gains and losses gets diversified.
Yes, stock earn you more than mutual funds but only if it performs. You put on your money only on one horse where the risk of loss in the race is very high. However, in mutual funds, you put on money to different horses and hence even if one loses the other wins or comes second/third/fourth. So you end a losing lesser then what you shall loose if your only one stock fails to perform. You will only end up being optimistic that your stock grows and you outperform your expectations.
Mutual funds NAV
Same as stock price, mutual funds have their Net Assets Values which are known as NAVs. The NAVs are nothing but price per unit of any particular scheme which you are investing. So every scheme which starts up with Rs. 10 per unit ends up or loses its value after its stocks loose and gains its value if the stocks purchased by the particular scheme gain. NAV works the same way how stock works but the primary difference here that NAVs decreases when more stocks of any particular schemes go down and increases when more stocks of the particular scheme goes up. So as an investor here, you will understand that you have invested in more stocks and not in one stock so risk of your investment has been diversified.
Additionally for mutual funds you get a skilled fund manager who has his experience and wisdom to select the stocks where he wants to invest. Also the fund manager is well backed up with a research team who provides him live analytics of the particular stock which makes the fund manager more comfortable in choosing the stock for better performance. Research and analytics also help the fund manager to invest the funds in different stocks to diversify his investment.
Performance-
Every stock has its performance and hence every mutual fund NAV also has its performance. There are variations as per the ups and downs of the markets. In a healthy market, you can witness variations and such variations ony end up infirming you that the markets are good for the investor. Its same like your ECG of your heart, variations in ECG always indicate that the heart is pumping well. A stable ECG gives a indication that the patient is no more.
You need to look at performance of the market and compare the performance with the particular scheme. You should always take a expert advice on whether to invest any particular fund based on the past performance. Please embed in your mind that “past performance is no guarantee for future”. So do not blindly invest on the basis of past performance.
Selection of the fund
Finally we come to selecting the right fund for your investment. So ensure that you fill on the risk profiler available on our website. Answer the questions correctly and our professional advice shall ensure that you reach your goals without any hassles of eroding your portfolio. You also can research funds on the internet and ask us about the fund performance and we shall be happy to service you.
very informative