Mutual Funds

As the name suggests, a mutual fund is an investment vehicle that allows a group of people to pool their money in order to invest in stocks, bonds and other securities. This pool of money is managed by professional investment managers who have a sound understanding, knowledge, expertise of investing in the financial markets. Going by its origin, a mutual fund allows a group of investors to:

  • Collectively invest in such instruments with a predetermined investment objective
  • Get professional management
  • Build a diversified investment portfolio
  • Generate better inflation adjusted & tax friendly returns
  • Choose among a variety of investment at low costs
  • Invest systematically

Types of Funds:

When it comes to invest in mutual funds, investors have plenty of choices

Open Ended: Open ended funds scheme allows investors to buy or sell units at any point in time. Under this scheme, investors have the flexibility to buy or sell any portion of their investments at any disposal of time as this does not have a fixed maturity date.

Close Ended: A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme.

Interval Fund: A fund that combines the features of open-ended and closed-ended schemes, making the fund open for sale or redemption during pre-determined intervals.

Where do mutual funds invest?

Mutual funds mainly invest in the following markets:

Equity markets: Equity markets refers to investments in shares/stocks

Debt Markets: Debt markets refers to investments in various secured instruments like company deposits, Government bonds, commercial papers etc

Cash: Maintaining cash helps fund managers balance portfolios so that during the investment interim if investors need to withdraw invested amount, they can be returned the value they invested plus any return generated.

Why should you invest in mutual funds?

  • Beat inflation
  • Professional investment management
  • Convenience
  • Low cost
  • Efficiency/liquidity
  • Diversification
  • Liquidity
  • Higher return potential
  • Safety & Transparency

Mutual fund investing assure good returns over a time frame of 5-10 years. Save for important life goals like retirement, child education and marriage. Capital preservation, appreciation and income generation, the reasons of investing with mutual funds can be many. To know more, consult advisors at Investmart today!