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Mutual Fund

Mutual Fund works as a vehicle which enables a group of people to:

  •  Pool all of their surplus investible funds and then collectively invest in assets or instruments for some common investment goal.

  •  Optimize the experience and knowledge of some fund manager, which is something that one may not possess individually.

  •  Obtain benefit from economies of scale that can be achieved by large groups of people and cannot be individually achieved.

Mutual fund investments work very much like usual investments that are made by some kind of collective sum. While a single individual may have less amount of money for investment purposes, a group of people is likely to have more amount of money at hand. Now, let’s imagine a situation where the group of individuals has little to no idea about investments and they consult an expert to help out with their investment goals. This is exactly how an Asset Management Company functions when it comes to dealing with mutual funds. The investors’ money is taken by the AMC and it invests the sum on their behalf on various assets to achieve some common investment objective.

 

Therefore, it can be said that a mutual fund works like an investment vehicle that can help in pooling the investors’ money and then investing it on behalf of the investors into bonds, stocks, money market instruments as well as other assets. This money is obtained by AMC so that it can be invested in some definite manner by the professional managers, also known as the fund managers. The fund managers are supposed to see to it that the money is invested in the pre-agreed manner. The SEBI and Board of Trustees make sure that it actually happens.

Asset Classes

Here is a standard classification of the various kinds of mutual fund schemes based on numerous parameters:

Open ended funds

The open-ended funds are always available for subscription at all times of the year. Such funds do not actually have any fixed maturity. The investors have got the flexibility to purchase or sell the part of their investments at any point of time based on the prevailing price (NAV or Net Asset Value) available at that time.

Close Ended funds

The close ended funds start with fixed corpus and then function for a definite and fixed duration. They remain open for subscription for only a specified period. Once the period terminates, the investors can start redeeming their units at prevailing NAV.

Equity 

Debt

Hybrid

Real Estate

Index

Income

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