Guide to Investment in Mutual Funds

Mutual funds operated by investment companies that raise money from shareholders and invests it in stocks, bonds, options, commodities, or money market securities. A fund house enables investors to pool their money. 

Small investor can put small amount money as specified minimum amount or any money as desired by investor.

Mutual funds offer investors the advantages of diversification and professional management.

The portfolio manager trades the fund's underlying securities, realizing a gain or loss, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. 

Mutual funds offer investors a variety of goals, depending on the fund and its investment character. Some funds, for example, seek to generate income on a regular basis. Others seek to preserve an investor's money. Still others seek to invest in companies that are growing at a rapid pace. Funds can impose a sales charge, or load, on investors when they buy or sell shares. Many funds these days are no load and impose no sales charge. These are called No Load Mutual fund.  Mutual funds are investment companies regulated by the Investment Company Act.

It is proven statistically that equity as a class always outperforms all other asset class. Most conservatively, it can be assumed that equity can give post tax compounding return more than 10%. It means money will multiply in every 7.2 years. If investment horizon is more than 10 years, there is also much less chance of capital loss.

Equity Mutual funds

Fund invest majority of their money in equity market. Company can invest large cap, mid cap or small company with sound fundamentals. Equity fund is generally rated based on fund management style. Fund manager may invest in value oriented company or growth oriented company.
Normally fund declares the  fund investment style in new fund offer. Investor need to read the fund offer to check whether the fund management style matches with your own. 
Risk/Return ratio of a fund is determined by Sharpe Ratio. Mathematically, the Sharpe ratio is the return generated by over the risk free rate. A higher risk ratio is better as it generates a higher return generated per unit of risk.  
Sharpe ratio of a fund need to be compared with a benchmark index.  

Index fund
It is a special equity fund where fund manager only   invest in index. This fund tracks the market trend. It actually guarantees market return. It is a best form of passive investment in equity market. 
A stock index is a hypothetical portfolio of stocks - a list of names and numbers of shares - selected according to some established criteria. An index fund is a real mutual fund that buys stocks and holds them in a portfolio that approximates the index.
Balanced fund
 Fund manager divides total fund in equity and debt market. It is most conservative approach of investment. On one side it gets cushion of less volatile debt market return along with return of equity market.
Debt Fund
Fund invests in purely debt market.
Gilt Fund
Gilt funds invest in high quality-low risk debt, mainly government securities.
Money Market
A mutual fund that aims at maximum safety, liquidity, and (usually) a constant price for its shares. Its assets are invested to earn current market interest rates on the safest, short-term, highly liquid investments.
Best wealth building strategy is to invest in equity mutual funds through a systematic Investment Plan (SIP). SIP should be debited from your salary account. This complete hands free automatic process is key to be millionaire.
Investments Mutual Fund for long term wealth creation