Mutual Funds
A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.
Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund—derived by the aggregating performance of the underlying investments.
Mutual Fund
Types of Mutual Fund
Equity Funds
The largest category is that of equity or stock funds. As the name implies, this sort of fund invests principally in stocks. Within this group are various subcategories. Some equity funds are named for the size of the companies they invest in: small-, mid-, or large-cap. Others are named by their investment approach: aggressive growth, income-oriented, value, and others.
Fixed Income Funds
A fixed-income mutual fund focuses on investments that pay a set rate of return, such as government bonds, corporate bonds, or other debt instruments. The idea is that the fund portfolio generates interest income, which it then passes on to the shareholders. These funds are often actively managed and seek to buy undervalued bonds in order to sell at a profit.
Index Funds
The Investment strategy is based on the belief that it is very hard, and often expensive, to try to beat the market consistently. This strategy requires less research from analysts and advisors, so there are fewer expenses to eat up returns before they are passed on to shareholders. These funds are often designed with cost-sensitive investors in mind.
Income Funds
Income funds are named for their purpose: to provide current income on a steady basis. These funds invest primarily in government and high-quality corporate debt, holding these bonds until maturity in order to provide interest streams. As they produce regular income, tax-conscious investors may want to avoid these funds.
Balanced Funds
Balanced funds invest in a hybrid of asset classes, whether stocks, bonds, money market instruments, or alternative investments. The objective is to reduce the risk of exposure across asset classes. It is also known as an asset allocation fund and is designed to cater the investors objectives by both its variations.
Money Market Fund
The money market consists of safe (risk-free), short-term debt instruments, mostly government Treasury bills. This is a safe place to park your money. You won't get substantial returns, but you won't have to worry about losing your principal. The return is little more than what you earn in regular checking or savings account.
Benefits of Mutual Fund
Diversification
One of the most prominent advantages of investing in mutual funds is diversification. It is the process of spreading a given investment over multiple assets classes. Diversification helps us create an assorted portfolio that segregates the headwinds experienced in various sectors and investment is done as one's risk appetite.
Professional Management
A lot of investors do not have the time or resources to conduct their research and purchase individual stocks. This is where professional management becomes quite useful. Several people invest in mutual funds for the professional expertise it provides to one’s investments. It is one of the most important advantage of a mutual fund.
Highly Liquid
One can easily sell mutual funds to meet their financial needs. Upon liquidation, the money is deposited in your bank account in few days. Additionally, there are mutual funds that provide faster disbursal. They are called funds having instant redemption facuility , wherein the money is transferred to your bankon the same day.
Easy Investment
It is very easy to invest in mutual funds, i.e. you can do this either online or offline. You simply need to visit your Asset Management Company’s (AMC) website and submit the necessary documents to start on your investment journey. Moreover, you can also visit your AMC in person and sign the physical documents to get started.