Mutual fund is a pool of money collected from investors and is invested according to certain investment options. A mutual fund is a trust that pools the saving of a no. of investors who share a common financial goal. A mutual fund is created when investors put their money together. It is, therefore, a pool of investor's fund. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the no. of units owned by them.
The most important characteristics of a fund are that the contributors and the beneficiaries of the fund are the same class of people namely the investors. The term mutual fund means the investors contribute to the pool and also benefit from the pool. The pool of funds held mutually by investors is the mutual fund.
A mutual fund business is to invest the funds thus collected according to the wishes of the investors who created the pool. Usually the investors appoint professional investment managers create a product and offer it for investment to the investors. This project represents a share in the pool and pre status investment objectives.
Thus, a mutual fund is the most suitable investment for a common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at relatively low cost.
If mutual funds are emerging as the favorite investment vehicle it is because of the many advantages. They have over other forms and avenues of investing parties for the investors who has limited resources available in terms of capital and ability to carry out detailed reserves and market monitoring. These are the major advantages offered by mutual fund to all investors:
[...] Even the mutual fund agents need to understand the accounting for the funds transaction with investors and how the fund accounts for its assets and liabilities, as the knowledge is essential for them to perform their basic role in explaining the mutual fund performance to the investor. For example, unless the agent knows how the NAV is computed, he cannot use even simple measures such as NAV change to assess the fund performance. He also should understand the impact of dividends paid out by the fund or entry/exit loads paid by the investors on the calculation of the NAV and therefore the fund performance. [...]
[...] Only a small segment of the investors still in Mutual Funds and the main source sources of information still are the financial advisors followed by advertisements in different media. The Indian investors generally invest over a period of 2-3 years. Also there is a tendency to invest in fixed deposits due to the security attached to it. In order to excel and make mutual funds a success, companies still need to create awareness and understand the psyche of the Indian customer. [...]
[...] These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. Gilt Fund: These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. [...]
[...] These are the major advantages offered by mutual fund to all investors: Professional Management: Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification: Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. [...]
[...] TYPES OF MUTUAL FUNDS Schemes according to Maturity Period A mutual fund scheme can be classified into open-ended scheme or close- ended scheme depending on its maturity period. Open-ended Fund/ Scheme: An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity. [...]
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