The
following are some of the more popular definitions of a Mutual Fund
A Mutual Fund is an investment tool that allows small investors access to a
well-diversified portfolio of equities, bonds and other securities. Each
shareholder participates in the gain or loss of the fund. Units are issued
and can be redeemed as needed. The fund's Net Asset Value (NAV) is
determined each day.
Mutual Funds are financial intermediaries. They are companies set up to
receive your money, and then having received it, make investments with the
money Via an AMC. It is an ideal tool for people who want to invest but
don't want to be bothered with deciphering the numbers and deciding whether
the stock is a good buy or not. A mutual fund manager proceeds to buy a
number of stocks from various markets and industries. Depending on the
amount you invest, you own part of the overall fund.
The beauty of mutual funds is that anyone with an invest able surplus of a
few hundred rupees can invest and reap returns as high as those provided by
the equity markets or have a steady and comparatively secure investment as
offered by debt instruments.
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There
are several benefits from investing in a Mutual Fund.
·
Small
investments:
Mutual funds help you to reap the benefit of returns by a portfolio spread
across a wide spectrum of companies with small investments. Such a spread
would not have been possible without their assistance.
·
Professional Fund Management:
Professionals having considerable expertise, experience and resources manage
the pool of money collected by a mutual fund. They thoroughly analyses the
markets and economy to pick good investment opportunities.
·
Spreading Risk:
An investor with a limited amount of fund might be able to invest in only
one or two stocks / bonds, thus increasing his or her risk. However, a
mutual fund will spread its risk by investing a number of sound stocks or
bonds. A fund normally invests in companies across a wide range of
industries, so the risk is diversified at the same time taking advantage of
the position it holds. Also in cases of liquidity crisis where stocks are
sold at a distress, mutual funds have the advantage of the redemption option
at the NAVs.
·
Transparency and interactivity :
Mutual Funds regularly provide investors with information on the value of
their investments. Mutual Funds also provide complete portfolio disclosure
of the investments made by various schemes and also the proportion invested
in each asset type. Mutual Funds clearly layout their investment strategy to
the investor.
·
Liquidity:
Closed ended funds have their units listed at the stock exchange, thus they
can be bought and sold at their market value. Over and above this the units
can be directly redeemed to the Mutual Fund as and when they announce the
repurchase.
·
Choice:
The large amount of Mutual Funds offer the investor a wide variety to choose
from. An investor can pick up a scheme depending upon his risk / return
profile.
·
Regulations:
All the mutual funds are registered with SEBI and they function within the
provisions of strict regulation designed to protect the interests of the
investor.
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A Mutual Fund is not an alternative investment option to stocks and bond;
rather it pools the money of several investors and invests this in stocks,
bonds, money market instruments and other types of securities.
A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is then invested in
capital market instruments such as shares, debentures and other securities.
The income earned through these investments and the capital appreciation
realised are shared by its unit holders in proportion to the number of units
owned by them. Thus a Mutual Fund is the most suitable investment for the
common man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost. The
flow chart below describes broadly the working of a mutual fund:
