What is Mutual Fund?
Simply put, a mutual fund is a financial intermediary that enables a group of investors to pool their funds together for the purpose of achieving a specific investing goal. The pooled funds will be invested by the mutual fund’s fund manager into particular securities (usually stocks or bonds). Because they are incredibly cost-effective and simple to invest in (you don’t have to decide which stocks or bonds to buy), mutual funds are among the best investments ever made.
How it Works?
A mutual fund is a group of investors’ holdings of stocks, bonds, or other securities that are overseen by a seasoned investing firm. It can be challenging for an individual investor to have a diverse portfolio. Individual individuals can invest in both debt and equity assets at the same time with the aid of mutual funds. Investors become the unit holder of the relevant units when they invest a certain amount in mutual funds. Mutual funds then invest the money from unit holders in stocks, bonds, or other interest- or dividend-bearing instruments. The holders of the units receive this money. The unit holders are eligible to receive capital gains if the fund makes money by selling some stocks at a higher price.
Advantages of Mutual Fund:
Professional Management: The main benefit of having funds is that your money is managed in a professional manner. Because they lack the time or the knowledge to manage their own portfolio, investors buy funds. For a small investor, a mutual fund provides a reasonably priced approach to hire a full-time manager to make and oversee the investments.
Diversification: Your risk is spread out when you own “shares” (also known as “units”) in a mutual fund as opposed to individual equities or bonds. The goal of diversification is to invest in a variety of assets so that profits in other investments would offset losses in any one investment as much as possible. In other words, the less any one stock or bond may harm you, the more of them you possess. Big mutual funds frequently hold hundreds of unique stocks across numerous industries. A tiny investor wouldn’t be able to create this kind of portfolio with their limited resources.
Liquidity: A mutual fund gives you the same flexibility to sell its units at any moment as an individual stock does.
Simplicity: A mutual fund is simple to purchase! Also, the minimum investment is quite low. Monthly investments can be made for as little as Rs 500. Get in touch with us to learn more.
History of Mutual Fund:
The concept of mutual funds was first introduced by UTI in 1963, which marked the beginning of the mutual fund sector in India. It picked up speed as non-UTI players entered the market in 1987. The mutual fund business in India has dramatically improved in the last ten years, both in terms of quality and quantity.
Types of Funds:
- Open Ended
- Close Ended
Classification of Funds:
An equity fund is a mutual fund scheme that invests predominantly in equity stocks. In the Indian context, as per current SEBI Mutual Fund Regulations, an equity mutual fund scheme must invest at least 65% of the scheme’s assets in equities and equity related instruments.
Hybrid Funds are mutual fund schemes which invest in more than one asset class i.e. equity, debt and other asset classes depending on the investment objective of the scheme. These funds invest in a mix of different asset classes to diversify the portfolio with an aim to minimise the risk involved.
A tax mutual fund, also known as a tax-efficient mutual fund, is a type of investment fund that is structured in a way to minimize the tax impact on investors.