Investing in financial securities in the form of bonds, commodities are not feasible as it evolves a lot of risk along with effort to obtain the correct pick. An investor needs to have a long term insight into the future. The main reason why an investor thinks of investing in stock market is due to high returns, but you ought to consider it as a volatile market. Keeping aside the possibility of high rewards, a better choice for a novice would be to invest in mutual funds. For a beginner they need to be aware about the types of mutual funds before they end up making an informed choice.
Basically mutual fund is investing on a periodic basis and in due course of time a large corpus of funds becomes accumulated.
An insight into equity based funds?
The moment an individual focuses to invest in equity related schemes it is referred to as equity mutual fund. In such scenario up to 100 % of the total AMC is invested in such funds or the other type of mutual funds is invested in securities. But you can invest a small portfolio of such funds in debt related instruments in the form of bonds or government securities. Though equity based mutual funds are considered to be high risk funds, they also provide you with an opportunity of earning substantial revenue. There are various types of mutual funds on offer and you need to be aware before you make a choice.
A major way by which equity based fund ends up making money is via profits through profits of the capital market. It is achieved when the fund manager buys stocks listed in a stock market. In terms of selection of such funds certain key criteria is set forth, the flow of cash, prevailing and future market conditions, the stage of a company and so on and on. For example when it is a large cap fund it would be investing in large marketing capital
To buy a share is a mere bet that a fund manager puts in the hope of earning profits in long course of time. If things go as per plan you can end up earning a substantial amount of profit on the shares invested. In turn this enhances the value of the fund portfolio along with AMU of the fund. At this juncture the fund manager might decide that they would be selling off the shares, at a value higher to book profits and proceed to invest the share proceeds in a new company.
Another way to generate revenue is via the medium of equity funds. Based on the shares you hold dividends might accrue. The pay out of dividend adds up to the total value of the fund in the form of bonus shares or cash pay outs. There is a special type of mutual fund referred to as dividend yield mutual fund that focuses to earn money by this mechanism.
Before investing in mutual funds, evaluate the reasons for investing in such funds.