Mutual fund is a large pool of money of investors who like to save money and receive good returns. Mutual fund investment is more easier than the trading in stocks and bonds. Your investment in mutual fund is managed professionally by fund managers who use the money to build a well planned portfolio consisting of stocks, bonds and other financial instruments. As an investor, you own the shares of mutual fund investment, but do not gain the ownership of individual securities. With mutual fund, you can invest in small or large amounts as per your capacity and get the benefits from being involved in a large investment pool built by other people. Any gains and losses get shared equally by all the investors in proportion to their investment amount.
Types of mutual fund
Mutual funds are divided into various categories according to investments, schemes, tax incentive schemes, payout time, etc.
As per the investments
- Equity Funds
- Debt Funds
- Diversified Funds
- Gilt Funds
- Money Market Funds
- Sector Specific Funds
- Index Funds
As per closure of schemes
- Open Ended Schemes
- Close Ended Schemes
As per tax incentive schemes
- Tax Saving Funds
- Non-tax saving funds
As per time of payout
- Dividend paying schemes
- Reinvestment schemes
Reasons for investment in mutual fund
- Unlike other financial instruments, mutual funds are professionally managed by fund managers who carefully disperse money across different portfolios of stocks, bonds, etc. A dedicated research team takes sound financial decisions based on the prospects and performance, thus increasing the possibility of higher return for the investors.
- If you do not have the time and the knowledge of how to invest in the equity market, then the option of mutual fund can be availed as the instrument takes away your investment headaches and helps you concentrate on other important tasks of your life.
- Mutual fund cuts down the risk factor by distributing the money across different instruments. Moreover, mutual fund offers a suitable option for individuals having limited capital.
- Mutual fund companies, often called as asset management companies (AMCs), provide information regarding the actual value of the investment, along with their performance strategy, on a regular basis. With this, you can understand where your investments are heading. The transparency is ensured as mutual fund investments are regulated by the Securities and Exchange Board of India (SEBI), the market watchdog.
- Mutual fund schemes offer tax benefits
- With open ended mutual funds, you have the option to redeem all or a portion of their investment at any given time to obtain the current value of stocks held by you.