Think of a mutual fund as a big jar of cookies. Each cookie in the jar represents a different type of investment like stocks (which are shares in a company) or bonds (which are like loans to a company or the government).
Now, imagine you and your friends want to buy cookies from this jar, but they’re too expensive to buy on your own. So, you all decide to pool your money together to buy the whole jar. This way, each one of you gets a variety of cookies for a much lower price than if you were to buy them individually.
This is what a mutual fund does. It pools money from many people (like you and your friends) and uses that money to buy a variety of investments (the cookies). The mutual fund is managed by professionals who decide which cookies (investments) to buy.
Now, let’s say you want to start your own cookie jar (or in grown-up terms, start investing in a mutual fund). You can do this through something called a Systematic Investment Plan (SIP). With a SIP, you decide how much money you want to invest regularly. It’s like deciding how many cookies you want to add to the jar each week or each month.
For example, if you decide to invest Rs. 100 every month, at the end of the year, you would have invested Rs. 1200. But here’s where the magic happens. Because the value of the cookies (investments) can increase over time, your Rs. 1200 could grow into a larger amount!
So, with patience and regular investments, even small amounts can grow into a big cookie jar over time!