Mutual Fund Trading: Beginners Guide 101

A mutual fund is a financial instrument made up by pooling money from various investors, which is invested by an assigned person known as the fund manager into equities, debts, bonds, etc., as per the fund's investment objective. Against the investment, the investor gets units of fund based on the set value per unit, also known as Net Asset Value (NAV) . This NAV rises as the fund pool grows or goes down as the fund shrinks.Let's delve deeper into the basics of mutual fund trading .

In the case of a mutual fund, an Asset Management Company (AMC) sells mutual funds and helps redeem the fund. This mutual fund trading is regulated by a central body in India known as the SEBI (Securities Exchange Board of India). As mentioned before, investors buy/sell mutual fund units based on their NAV decided once a day after the stock markets close.

A mutual fund is managed by a qualified and professional fund manager who charges a fee. Apart from this, there are other expenses incurred by the fund house or the AMC to manage the fund. This fee is proportionately distributed among the investors based on the units they have. This is called the expense ratio of the fund.

• Financial Goals It is crucial to understand your financial goals so that you can work backwards to identify the right mutual fund and the amount you must invest to achieve the set goal.
• Risk Profile Your risk profile could range from low to very high, depending on various factors. It is essential to choose a fund that aligns with your risk profile.
• Trading Strategy You can trade two ways in mutual funds- SIPs or lump sum. In SIPs, you invest a particular amount periodically towards a mutual fund, and in a lump sum, you put all the money together.
• Returns Strategy There are two ways to earn returns from the funds- Growth or Dividend. In dividend, you take out the earnings while keeping the principal amount invested, whereas the growth option re-invests your money into the fund, giving you compounded growth.

Mutual fund trading is about building a strong portfolio rather than relying on one fund to help you achieve your goal. Build a well-rounded portfolio by investing in funds that diversify your asset class spread. Choose a mutual fund and get started today through SIP.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.