Investing in Indian mutual funds is an excellent way for small investors to start off with much less risk.
What are these funds? A mutual fund is basically a company with a collection of stocks or bonds which can be bought and sold by a group of investors.
Investors each hold a portion of these stocks, bonds and other securities.
The investments are run by a professional manager who is responsible for buying and selling stocks and bonds to make a profit.
This profit comes from the interest and dividends on those stocks and bonds.
Securities that have increased in value may be sold and the mutual fund then makes a capital gain which the investors share in.
If the manager does not sell them, you can sell your individual shares for a profit.
You can choose to reinvest your profits and so gain more shares or you can choose to receive your profits via a cheque.
Investing in mutual bonds is a good way to get a professional manager to make and take care of investments at a reasonable cost, because the costs are spread out over a great number of people.
The transactions costs are lower too, because the fund buys and sells a greater number at one time.
There is greater liquidity in investing in mutual funds - you can convert your stocks into cash whenever you want to.
Of course, once you do that you will no longer have that investment.
However, you can convert some to cash and leave the rest in as an investment.
Investing in mutual funds allows the smaller investor to take advantage of investing their money at a lower cost and a great deal less risk than buying individual shares.
It is the ideal way to start out as an investor and make your money work for you.