Mutual Funds - A Potent But Cautious Tool

Mutual funds have become a potent investment option in the current fluctuating market scenario. Let us discuss why mutual funds have become one of the better bets in investment today.
Mutual funds are managed by expert Fund Managers and hence are in safer hands. An individual novice cannot make a kill in the equity or money market as the said investor may lack the proper expertise to do so. Even in the presence of proper expertise, time is a major factor in managing an individual portfolio. So it's better to leave them in expert funds.
The ideal way to invest in mutual funds in a fluctuating market is SIP or Systematic Investment Plan as it helps an individual to take advantage of the principle of Rupee Cost Averaging. So instead of putting money in lump sum, an SIP is surely a better bet.
There are different types of Mutual Funds available. By nature of lock in period they can be classified to be Open Ended and Close Ended. Open Ended Funds have no lock in period while Close Ended Funds do have.
By asset allocation they can further be classified as Equity, Debt and Gilt Funds. Equity funds invest directly in equities while Debt and Gilt Funds invest in money market instruments and corporate bonds respectively.
Among Equity Funds, there are special sectoral funds like Real Estate, Pharma, Infrastructure etc. But a Diversified Equity Fund is a better bet as it allocates funds to all sectors and doesn't comprehensively bank on a particular sector.
One can invest in the appreciation option of a fund where the NAV gets increased or the dividend payout or dividend reinvestment option. In the former, dividend is given directly to the investor while in the later the same accrued dividend is used to purchase additional units of the said fund on behalf of the investor.
Fund houses do charge an entry or exit load for investing in mutual funds but if the same investment is done directly through the fund house instead through a broker, the said fees are generally waived. The load is charged to pay for the brokerage of the dealers and distributors in general. Fund houses also offer options of switching over to different options of a same fund or moving over to an entirely different fund of the same fund house.
Thus in general Mutual Funds are a great way of investment as it allows you to buy quality equity or money market instruments with even very small amounts of money. It is in general a careful, planned and judicious approach of investing for a long to medium term to fulfill the financial goals of life.