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WHAT IS MUTUAL FUND?
Posted Date: 20 May 2008 Resource Type: Articles/Knowledge Sharing Category: Education
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Posted By: bharath sudar Member Level: Platinum
Rating:  Points: 2
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What is a Mutual Fund?
A Mutual Fund is an investment tool that allows small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The fund's Net Asset Value (NAV) is determined each day.
In simple words, Mutual Fund is a pool of money collected from investors and is invested according to stated investment objectives.
Mutual Funds are financial intermediaries. They are companies set up to receive your money, and then having received it, make investments with the money Via an AMC. It is an ideal tool for people who want to invest but don't want to be bothered with deciphering the numbers and deciding whether the stock is a good buy or not. A mutual fund manager proceeds to buy a number of stocks from various markets and industries. Depending on the amount you invest, you own part of the overall fund.
The beauty of mutual funds is that anyone with an investible surplus of a few hundred rupees can invest and reap returns as high as those provided by the equity markets or have a steady and comparatively secure investment as offered by debt instruments.
An investor in a mutual fund is actually buying shares of the fund. Each share represents undivided, proportional ownership in all of the fund’s underlying securities. Dividends and capital gains produced by these securities are paid out in proportion to the number of fund shares the investor owns. Thus, shareholders who invest a few hundred dollars get the same investment return per dollar as do those who invest hundreds of thousands of dollars. For tax purposes, dividends and capital gains are treated substantially as if the investors had bought and sold the underlying securities themselves.
In today’s complex financial marketplace, mutual funds offer investors a simpler, more convenient, and less time-consuming method of investing in a portfolio of securities than if investors were to trade them individually. Through mutual funds, investors delegate investment decisions to the funds’ managers—decisions such as which securities to buy, when to buy them, and when to sell them. Also, investors in mutual funds participate in a broader diversity of securities than average investors could by investing on their own. This diversity can reduce their risk. Mutual fund investors should select a fund which has an investment objective that closely matches their own. For example, they may want to maximize their current income, maximize the long-term growth of their capital, or achieve some combination of growth and income.
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