Mutual Fund

What is Mutual Fund? How mutual fund works?

Nowadays with equity market uptrend you would be listening to Mutual fund word very often from different different places. Event the advertisement of a mutual fund is increased a lot and you would be very frequently watching ads related to a mutual fund.

If you are from equity market then you would have knowledge about mutual fund but if you are from the nonfinance field and does not have any clue about mutual fund then this is the article specially for you. In this article, I will provide basic detail of mutual funds so that you would basic idea about it.

What is Mutual Fund?

Mutual Fund is a Trust which collects money from investors and it invests their money in equities, bonds, money market instruments and/or other securities.

Since investor has gave money to the mutual fund, each investor owns units into the mutual fund according to the money invested, which represents  portion of the holdings of the fund.

The income generated from this fund is distributed proportionately among the investors after deducting small fees by trust.

How to invest in a mutual fund?

Investing in mutual fund now days made easy, you can invest into mutual fund directly or with the help of any mutual fund agent.

If you invest directly then you would be investing into direct plans of the mutual funds, but if you are investing with the help of mutual fund agent then you would be investing into regular plans of the mutual fund.

You can invest in mutual fund by paying one time lumpsum amount or making systematic investment plan called SIP.

In SIP certain fixed amount mentioned by you would be deducted from account every month on fix date and invested to the mutual fund.

Types of Mutual Funds

Based on maturity period

Open Ended Fund: A mutual fund in which we can invest any time or withdraw amount any time.

  • Close Ended Fund: A mutual fund with fix maturity period between 3 to 10 years.

Based on investment objective

  • Equity/Growth Funds : A  mutual fund which invest major portion of  its amount into equity markets.
  • Debt/Income Funds : A mutual fund that invest major portion of its amount into debt instruments.
  • Balanced Funds : A mutual fund which invests some portion of its fund into equity market and some into debt instrument and some into others. The portion of investment varies as per the market situation.
  • Money Market / Liquid Funds : A mutual fund which invest into safe and short term instruments such as treasury bills, Certificate of deposit and Commercial paper.
  • Gilt Funds : A mutual fund which invest into government securities.

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