What is mutual fund?

Mutual funds can be said as an investment method achieved by investing money collected from a pool of investors.

It is a professionally managed investment that requires the investor to pay a small fee in return. The thing about mutual fund is that it is professionally managed so a person who has little or no knowledge about the share market can start their investment journey through mutual funds.

A mutual fund investor is a person who takes a slice of cake from a whole cake, and the person who bought the cake by collecting money from everyone is responsible for ensuring that the cake is not damaged is the mutual fund manager.

Every mutual fund that is floated in the market has its own objective for floating the investment initiative, and this reason is specified in the prospectus of the fund.

The prospectus lays out the basis for the fund, the details about the persons managing it, the history of the fund, and its past performance reports. The most popular mutual funds that are in vogue now are:

  • Equity (Growth)funds: These funds invest only in stocks.
  • Debt(Income) funds:  This invests in fixed-income securities
  • Money Market: These funds invest in short-term money market instruments (including government securities)
  • Balanced funds: These funds are a mix of equity and debt to balance the risk and return factors

As I said before mutual funds are floated by companies, and they are generally known as Asset Management Companies or AMCs.These companies have one or more varied mutual fund investment programs running. The AMC will appoint a professional money manager, who buys and sells securities in line with the fund’s stated objective.

If you are worried about who is the presiding authority over this AMC, put your mind to rest, every AMC comes under the regulations of SEBI and is governed by a Board of Directors who represent the shareholder’s interests than the AMC’s.

So, friends, this is my understanding and premise of the introduction to mutual funds.

As usual Namaste, Au Revoir, Sayonara and Vanakkam to my readers out there where ever you are and whoever you are.

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