Mutual Fund Overview

     

    A mutual fund is an investment vehicle that pools money belonging to many people to invest in a variety stocks, bonds or other securities. Mutual funds are managed by professionals who make the investment decisions for the fund with the goal of increasing the overall fund value. As the assets in the fund rise in value, your share of the fund (typically measured in “units”) will also increase in value. If the value of the fund’s assets decreases, so will the value of your units. Each fund has a written investment goal that helps you decide whether it should have a place in your overall financial plan.

     

    A mutual fund typically focuses on specific types of investments. For example, a fund may invest mainly in government bonds, stocks from large companies or stocks from certain countries. Some funds may invest in a mix of stocks and bonds, or other mutual funds.

    Benefits of investing in mutual funds:

    Professional Management
    When you invest in a mutual fund, your money is managed by finance professionals.
    Investors who do not have the time or skill to manage their own portfolio can invest
    in mutual funds. By investing in mutual funds, you can gain the services of professional
    fund managers, which would otherwise be costly for an individual investor.

    Diversification
    Mutual funds provide the benefit of diversification across different sectors and
    companies. Mutual funds widen investments across various industries and asset classes.
    Thus, by investing in a mutual fund, you can gain from the benefits of diversification
    and asset allocation, without investing a large amount of money that would be required
    to build an individual portfolio.

    Liquidity
    Mutual funds are usually very liquid investments. Unless they have a pre-specified
    lock-in period, your money is available to you anytime you want subject to exit
    load, if any. Normally funds take a couple of days for returning your money to you.
    Since they are well integrated with the banking system, most funds can transfer
    the money directly to your bank account.

    Flexibility
    Investors can benefit from the convenience and flexibility offered by mutual funds
    to invest in a wide range of schemes. The option of systematic (at regular intervals)
    investment and withdrawal is also offered to investors in most open-ended schemes.
    Depending on one’s inclinations and convenience one can invest or withdraw funds.

    Low transaction cost

    Due to economies of scale, mutual funds pay lower transaction costs. The benefits
    are passed on to mutual fund investors, which may not be enjoyed by an individual
    who enters the market directly.

    Transparency

    Funds provide investors with updated information pertaining to the markets and schemes
    through factsheets, offer documents, annual reports etc.