What is a Mutual Fund

Mutual Fund

A mutual fund is an entity that pools the money of many investors and then invests them in different securities. Investments may be in shares, debt securities, money market securities or a combination of these. On behalf of the investors / unit-holders, these securities are professionally managed by a fund manager, working effectively to generate a return from investments.

How do Mutual Funds Work

Why Invest in a Mutual Fund?

• Mutual Funds are Professionally Managed
  Mutual funds hire full-time, high-level investment professionals called the Fund Managers. The Fund Managers have real-time access to crucial market information and are able to execute trades on the largest and most cost-effective scale.

• Mutual Funds offer Diversification
  Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund unit-holders can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities.

• Mutual Funds provide Economies of Scale
  A mutual fund let's you participate in a diversified portfolio for as little as Rs.5,000/-, and sometimes less. And with a no-load fund, you pay little or no sales charges to own them. Mutual Funds let you make transactions on a much larger scale for less money.

• Mutual Funds are Liquid
  In open-ended schemes, you can get your money back promptly at net asset value related prices from the mutual fund itself.

• Choice of schemes
  There are many schemes to choose from depending on the amount of risk you can take, or the return you expect.

Types of Mutual Funds

There are wide varieties of Mutual Fund Schemes that cater to the needs such as financial position, risk tolerance and return expectations of an investor.

BYSTRUCTURE

Open-End Funds: The fund does not have a fixed pool of money. At the end the day new units are issued to the investors, while some are redeemed back.

Closed-End Funds: These types of fund have a fixed pool of money which was collected during the initial public offer. An investor wishing to buy or sell units subsequent to the IPO has to go to the secondary market.