A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment company in the UK.
How should I choose whether to choose SIP or Lumpsum?
Investing in SIPs or a lumpsum investment? Choosing one depends on your familiarity with mutual funds, the fund you want to invest in, and your goal. If you want to invest regularly to accumulate enough capital for a goal, invest in a suitable stock scheme via SIP. For example, if you want to save from your monthly income and put it in an option where you can grow your money significantly so that in the long run it is enough to fund your child’s higher education, SIP is the answer. If necessary, seek help from a fund advisor.
If you now have a surplus of money, such as – bonuses, proceeds from the sale of property or the pension corpus, but you are not sure how to use it, go for a lump sum investment in a debt or liquid fund. SIPs are recommended for investing in capital-oriented schemes, while lump sums are more suitable for debt funds. If you’re new to investing in mutual funds, SIPs are made for you. SIPs need long enough horizons to be useful. You can invest in lumpsum if the market has followed an uptrend and you think it will continue for a long time. SIPs are best suited for a highly fluctuating market phase.