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Mutual Fund Basics: A Guide to Understanding and Investing Wisely

Namrata Singh, CFP & Chaitali Shah, MA (Economics)

A Mutual Fund is a collective investment vehicle managed by a professional fund manager. It operates as a trust, gathering funds from numerous investors who share a common investment objective. These pooled funds are then diversified across various assets such as equities, bonds, money market instruments, gold, and silver in line with the investment objective of the scheme.

Evolution of the Mutual Fund Industry:

The Mutual Fund industry transitioned from a monopoly with UTI being the sole player in 1993 to 44 asset management companies today. As of October 31, 2023, the industry's Assets Under Management (AUM) have more than doubled from ₹22.24 trillion in 2018 to ₹46.72 trillion, reflecting its growing popularity (source: AMFI).

Dispelling Common Misconceptions:

Are Mutual Funds Stocks/Equity Shares? No.

Do Mutual Funds Invest Only in Stocks? No.

An investor can build a portfolio consisting of equities, bonds, money market instruments, gold, and silver through Mutual Funds. Whether building an emergency fund through liquid funds or planning for retirement with diversified equity funds, Mutual Funds offer flexibility and strategic investment options.

Professional Management:

Imagine that we are going on a trip, we have option 1. Driving ourselves or 2. Taking a cab or a flight or a train.

If we choose to drive our own car, we need to know how to drive, have knowledge of the routes that can be taken, ensure that we drive safely and take all necessary preparations for the long drive. If we take option 2 we are handing over the responsibility of getting to our destination to experts whose job is to ensure that we reach safely on time and at a reasonable cost.

Similarly, we can choose to invest ourselves. For that, we need the time, knowledge and capacity to build a portfolio and manage it. Or, we can hand over the job to a professional who will manage our money.

Advantages of Mutual Funds:

● Professional Management

● Risk Diversification

● Affordability and Convenience (allowing small investments)

● Low Cost (due to economies of scale)

● Well Regulated (SEBI ensures stringent rules and investor protection)

● Liquidity

Pitfalls of Investing in Mutual Funds:

● Returns are not guaranteed

● Returns are volatile

● Short-term losses are possible

Balancing Advantages and Pitfalls:

In our assessment, the benefits of Mutual Fund investments outweigh the drawbacks. . One can start their investment journey with just Rs. 5000. In fact one can start a SIP (Systematic Investment Plan) with as little as Rs. 500 per month.

We encourage readers to assess their risk appetite thoroughly before investing in Mutual Funds.

Disclaimer: Investments in mutual funds are subject to market risks.


Namrata Singh is a Certified Financial Planner with more than 15 years of experience in banking and wealth management. (

Chaitali Shah, M.Com & MA (Economics) is a Financial Coach and was a Financial Economics Faculty at Wilson College, Mumbai (

(Please note all views are personal)

First published on 12th November 2023 on

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