What is Mutual Funds

Introduction

A mutual fund is a type of financial bucket, which is made up of a pool of money collected from many investors. The mutual fund house invest in securities like stock, bonds, money market instruments. Mutual fund are operated by professional fund managers. Mutual fund give small or individual investor to access professionally managed portfolios. 

Usually a mutual fund house invest in a vast number of securities. It's performance is tracked as the change in the total market cap of the fund.

Key points

1. Vaule of portfolio is derived on daily basis with the help of NAV. (net asset value)

2. Usually a mutual fund charge expenses ratio which is a type of remuneration we paid to money managers to construct our portfolio

3. Many mutual fund house provide to invest with a lower amount that is ₹ 100 or ₹ 500.

4. All mutual fund house are governed by SEBI regulation 1996. So SEBI is the regulator of all Asset management companies.

Benefits of mutual funds

The main advantage of investing in a mutual fund is that each investor gets access to professional money management and expertise. As we all know it would be very difficult for an investor to create a diversified portfolio of his own investment with the help of mutual fund investor participate proportionately in the return the scheme generate.

Let understand it by an example suppose we have invested ₹ 500 in a specific mutual fund scheme now for this scheme NAV is ₹ 50 then we will assign 10 units of mutual fund scheme. The entire profits generated will be divided among all the units by which entire portfolio is constructed.

Types of mutual fund

1. Equity funds - funds that invest only in stock and other equity instruments.

2.  Debt funds - funds that invest only in fixed income instruments. 

3. Money market funds - funds that invest in short term money market instruments.

4. Hybrid funds - funds that divide in investment between equity and debt to create a balance.