MUTUAL FUNDS
Introduction:
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money so collected is then invested in the capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. 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 a relatively low cost.
The flow chart below describes broadly the working of a mutual fund:
· All investors pool their money in a common investment vehicle.
· Then money is then entrusted with the fund manager.
· The fund manager invests the money in different kind of securities as per the objective of the scheme.
· The return realized from the invested amount is passed on to the investors in proportion to the units held by them.
The mutual fund industry in India was started in the year 1963 with the formation of the Unit Trust of India at the initiative of the Government of India and Reserve Bank.
Advantages:
Flexibility: With a wide range of features to select from, such as systematic investment plans, systematic withdrawal plans & dividend reinvestment, mutual funds offer flexibility to the investors.
Affordability: Mutual funds are available in units and hence, are affordable even by a small investor. Besides, the large corpus enables even a small investor to benefit from its investment strategy.
Liquidity: In open-ended schemes, you have the option of withdrawing or redeeming your money at any point of time at the current NAV
Portfolio Diversification: As mutual funds invest across different industries & stocks, the risk is lower.
Professional Management:The funds are managed by expert fund managers who based on experience & research invest after analyzing all options, thus, giving the investor the advantage of a professionally managed fund
