What are mutual funds? - What is a mutual fund? - What are mutual funds in India?

A mutual fund is a pool of money in which money is managed by a team of highly professional fund managers and analyst. A mutual fund is a nothing but a collection of money from the number of people and as a whole is managed by experts in finance domain. To give you more detail idea about a mutual fund let's consider one example. There are "n" numbers of investors who do not have time and sufficient knowledge or expertise in share market but want to invest in it. Mutual fund company or Asset Management Company (AMC) comes up with a plan for these investors in which AMC will collect fund from individual investor and on behalf of them it will invest in share market, money market, corporate or government bonds etc. To manage this money AMC appoints a team of experts in the financial domain and advisory who will make sure that this money is distributed across different stocks and other investment vehicles and will gain profits. Some part of this profit is then divided amongst the investors equally and the remaining part is taken by mutual fund or asset management company (AMC) on account of expenses, levies, and fees. The fees charged by mutual funds are regulated and are subject to certain limits specified by the Securities and Exchange Board of India (SEBI). The profit earned is distributed to investors with various direct or indirect ways such as declaring dividends known as Mutual fund schemes under dividend plan (D) and growth to mutual fund Net Asset Value or NAV known as Mutual fund schemes under Growth plan (G) .

What are the main advantages and highlights of Mutual funds?

  • Benefits of Investing in Mutual Funds - Advantages of Mutual funds:

    • An investor does not need to worry about market research, analysis and any risk associated with it yet investor can create good wealth over longer the period of time.
    • If an investor has less money still he can earn sufficient growth over the period of time.
    • Mutual funds offers number of different options to choose from in the financial spectrum. Thus, plenty of options are available in mutual funds schemes according to investor's need. This is because mutual fund company or Asset Management Company offers various schemes according to investors risk capacity, regular income requirements and investment horizons. An individual investor can set back relaxed and just choose the mutual fund scheme with a little research by having a glance on historical returns and performance of scheme and as per his own requirements.
    • There are some options in mutual funds are available which pays you monthly or regular dividend based on your accumulated units. This, in short, makes good money on regular basis.
    • Some mutual fund scheme which comes under the Equity Linked Savings Scheme category (ELSS) offers tax benefits under section 80C of Income Tax Act. You can read more about What are ELSS or Equity Linked Savings Scheme?
    • An investor can withdraw money any time by selling out the units (Except ELSS which has lock in period of 3 years). Thus, investor 's money is not blocked and can be used any time according to needs.

  • Summary:

    • A mutual fund is a pool of money in which money is managed by a team of highly professional fund managers and analyst. A mutual fund is a nothing but a collection of money from the number of people and as a whole is managed by experts in finance domain.
    • The organization which provides mutual fund schemes and manages everything on behalf of the individual investor is known as Asset Management Company or AMC. The Asset management Company appoints portfolio manager or fund manager who has expertise in finance domain and share market. The fund manager is responsible for distribution and management of the funds collected from the individual investor.
    • Mutual funds are ideal for those investors who either have less money for investment, or for those who neither have the inclination nor the time to research the share market, but want to grow their wealth. The money collected from individual investor by mutual funds is invested by experts in finance domain also known as fund managers. The investment is done according to the mutual fund scheme's category and objective.
    • The Asset management Company also know as AMC offers the variety of schemes according to the individual risk capacity or risk profile, regular income requirements, investment time period, and various types of mutual fund category that comes under regulations of Securities and Exchange Board of India (SEBI).