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Mutual Fund: A General Idea

Posted on the 18 October 2012 by Yogeshvashist98 @YogeshVashist98

What is a Mutual Fund?

Mutual Fund is referred to ‘an investment vehicle that is made up of a pool of funds, usually collected from a group of investors for investing in securities like stocks, bonds, money market and similar securities’. In other words, a Mutual Fund can also be explained as a tool that not only offers an investment opportunity to a group of investors to plan their investment for a better and healthy return, but also enables investors to pool their money together with a predetermined investment goal.

Why to invest in Mutual Fund?

Mutual Fund is almost advantageous than other plan, as it is managed by very experienced and skilled professional money managers, working towards making our investment yielding better and healthy returns. Money manager is not only responsible for investing the gathered or collected sum into specific securities such as stocks or bonds but also responsible for structuring a mutual fund’s portfolio. Securities and Exchange Board of India (SEBI) formulates policies and regulates the mutual funds to protect the interests of the investors.

Mode of Investment in Mutual Funds

There are two modes of investment in a Mutual Fund. One is ‘A one-time outright payment’, where one-time payment is made and fund units are allotted depending on the value or price of the unit (also known as Net Asset Value or NAV), on that particular day. The other is ‘Periodic Investment” also known as Systematic Investment Plan or SIP, where a fixed or regular payment is made on monthly or quarterly basis.

Types of Mutual Funds

There are varieties of Mutual funds available in the market, but all funds come under the three primary categories such as Stock Funds, Bond Funds and Money Market Funds. A Money Manager generally recommends an investor to diversify Mutual Fund portfolio by mixing of these three categories.

  • Stock Funds: -  Stock funds are the most volatile funds amongst all the three funds. It is also known as Equity fund, where the value of funds rises and falls very sharply over a short period. But irrespective of all sudden moves it has been observed that the Stock funds have been the better performers over the long term than other types of plan.

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