mutual-fund

What is a mutual fund?

How does a mutual fund work and how can investors make money using mutual funds?

Asked
Mridul Agrawal

A mutual fund is an investment instrument, basically collection of stocks and/or bonds, managed by professionals of an asset management company. Investors will put their money in different types of mutual fund units depending on their risk appetite and duration of investment.

There are different 3 major types of mutual funds in India:

1. Equity mutual funds: Invest most of the money gather from investors into stock market. The risk level in equity mutual funds are quite high and investors are advice to invest in these funds as per their risk appetite.

2. Debt mutual funds: Invest most of the money gather from investors into debt instruments like corporate bonds, government bonds, bonds issued by banks etc. These mutual funds are best for investors who are risk averse.

3. Balanced mutual funds: Invest the money gather into both debt and equity. These are diversified mutual funds having perfect balance between risk and returns on investment, and are most popular mutual funds these days.

All the mutual funds are registered with securities governing body SEBI to protect the interests of the investors. As an investor, you can buy these mutual fund ‘units’ at fund’s current Net Asset Value (NAV), which is calculated at the end of every day, taking into account of closing market prices of the securities in its portfolio and keep on fluctuating as per the fund’s holdings.

Investors make money from a mutual fund in 3 ways:

1. Income received as interest on bonds and from dividends on equities held in the portfolio of a mutual fund. Over the year, Mutual fund pays out all income it receives to investors in form of a distribution.

2. When mutual fund sells off securities, from its portfolio, whose market price has increased. The fund has a capital gain here and pass on these gains to investors in distribution.

3. You can withdraw your investment in mutual fund any time you feel like.

Happy investing!!

Tanya

A mutual fund is a professionally managed investment vehicle made up of money collected from investors in order to invest on their behalf. Mutual funds invest this money in securities like stocks, bonds, money market instruments, etc. Mutual funds are perfect for those investors who wish to invest in such securities but do not enough knowledge or time to do so. These funds are managed by professionals who allocate the money strategically to produce capital gains and income for the investors.

As an investor, you can buy units of mutual funds which basically represent your holdings in the scheme. These units can be bought or sold, at the fund's current Net Asset Value (NAV), as per the preference of the investor. The change in this NAV is what leads to investor's gain or loss as per the fluctuation.

The biggest advantage of investing through a mutual fund is that it gives the opportunity to small investors to access diversified portfolios which would otherwise be difficult for them to invest in with a small amount of capital.

There are seven types of mutual funds-

1.   Money market funds

2.   Equity funds

3.   Balanced funds

4.   Fixed income funds

5.   Funds of funds

6.   Specialty funds

7.   Index funds

Pijush Kanti Biswas

A lot of people follow stock markets and wish to invest in the shares offered by various companies, but they fear that they don’t have enough knowledge or don’t have sufficient time to keep track on and follow the latest buzz about the dynamic market. Mutual fund is the perfect solution for them as investing directly in equity market is a risk, not everyone willing to take.

A mutual fund is an investment instrument, basically collection of stocks and/or bonds, managed by professionals of an asset management company. Investors will put their money in different types of mutual fund units depending on their risk appetite and duration of investment.

There are different 3 major types of mutual funds in India:

1. Equity mutual funds: Invest most of the money gather from investors into stock market. The risk level in equity mutual funds are quite high and investors are advice to invest in these funds as per their risk appetite.

2. Debt mutual funds: Invest most of the money gather from investors into debt instruments like corporate bonds, government bonds, bonds issued by banks etc. These mutual funds are best for investors who are risk averse.

3. Balanced mutual funds: Invest the money gather into both debt and equity. These are diversified mutual funds having perfect balance between risk and returns on investment, and are most popular mutual funds these days.

All the mutual funds are registered with securities governing body SEBI to protect the interests of the investors. As an investor, you can buy these mutual fund ‘units’ at fund’s current Net Asset Value (NAV), which is calculated at the end of every day, taking into account of closing market prices of the securities in its portfolio and keep on fluctuating as per the fund’s holdings.

Investors make money from a mutual fund in 3 ways:

1. Income received as interest on bonds and from dividends on equities held in the portfolio of a mutual fund. Over the year, Mutual fund pays out all income it receives to investors in form of a distribution.

2. When mutual fund sells off securities, from its portfolio, whose market price has increased. The fund has a capital gain here and pass on these gains to investors in distribution.

3. You can withdraw your investment in mutual fund any time you feel like.


Happy investing!!

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