A mutual fund is one of the most feasible investment options for a common man as it provides an opportunity of investment in a diversified, professionally managed basket of securities at a relatively low cost. In other words, a mutual fund is a common pool that brings together a group of people for investing their money in stocks, bonds and other securities which gets further managed by a professional fund manager on their behalf. The money invested by every investor represents a holding of the fund, depending on the amount invested by each investor where each investor participates proportionally in the gain or loss of the fund. All mutual funds are registered with SEBI and they function in accordance with the provisions of strict regulations in order to protect the interests of the investor.
Mutual funds invest in the various type of securities, its performance is usually tracked as the change in the total market capitalization of the fund which gets obtained from the aggregate performance of the underlying investments.
Mutual Funds can be purchased or redeemed at the fund's current Net Asset Value(NAV) per share where fund's NAV is calculated by dividing the total value of the securities in the portfolio by the total amount of shares outstanding.
Broadly, Mutual Funds invests into three main types of asset classes:
Stocks represent ownership or equity in a company, which are also known as shares.
Bonds represent debt from companies, financial institutions or government agencies.
These consist of short-term debt instruments such as treasury bills, certificate of deposits and inter-bank call money.