Mutual Funds is an investment, in the form of stocks, bonds, securities and more. Those who are willing to take the risk, mutual funds are the best option for them. Its always related to market risk with some terms and conditions. Anyone can spend in mutual funds, its handle by the companies fund manager. You can spend your money in a particular fund scheme, according to its NAV (Net Asset Value) and also know how much good that scheme is working since one or two year or months. This will help you to select the better fund.
Mutual funds are of three types:-
1.Equity:- If you heard about RD (Recurring Deposit) of the bank, this work as same as that. It’s risky, fluctuating with a better return than banks. Ex:- 9%.
2.Debt:- This work just as FD(Fixed Deposit) works. But with a better return than the bank, up to 8.9% or above.
3. Liquidity:- Liquidity also called a Parking Fund. If you heard about Current a/c, it’s just same as that but gives 6-7% return. For Businessman parking fund is best, they can park their money for some time but still get a return on that.
If you are still confused that how we get more return than the bank, then let me clear your question. Mutual funds invest your money in the market and its all depend on compounding. Compounding is an amount you earn on your principal amount with interest and next time interest will be added on your principal sum plus accumulated interest.
By this above picture, you see the formulae of how compounding is done. You can also download Financial calculator to check.
For better returns, you have to spend your money at least for ten years. It will give you a good return in future. It’s easy to spend and if you don’t like to invest more, you can simply cancel it but at least after one year. Returns always get fluctuate, it will be more or less, according to market condition. Always read the documents clearly before investing in Mutual Funds.