Mutual Fund

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Basics of Mutual Fund

Money is merely a piece of paper until you realise the importance of saving and making it grow spirally. There is plethora of investment avenues available at present, but what suits your objective is the one you should opt for. On a broader picture, a common man can think of two options, either invest in shares offering glamorous returns with an associated unknown risk or invest in the regular income debt options offering lesser but safer returns.

Now the question arises: Is there a way in middle so that you get good returns like equity and safety of investment like fixed income options. Yes, a Mutual fund is what you should look for.

Why Mutual Funds?

What if you are a novice in the world of stock markets but still want to invest? What if you don’t have enough risk appetite for the investments you want to make? What if you don’t have time and skill to manage your portfolio and want some professionally qualified people to invest on your behalf? What if you are a novice in the world of stock markets but still want to invest?

What are Mutual Funds?

As implicit by name, mutual fund is a fund mutually held by the investors who are the beneficiaries of the fund. It is a type of Investment Company which collects money from so many investors in common pool and then invests this capital raised in variety of options like bonds, equity, gold, real estate etc. At the core of it are professionally qualified people called fund managers analysing the markets conditions and making investment decisions with an objective of maximization of profit. Substantially all the earnings of a MF are passed on to the investors in proportion to their investments. In lieu of the services offered, the mutual fund also charges some fees from the investors. The diagram below clearly indicates that investors invest in mutual fund that further makes investment in various options.

Mutual Funds Basics

Having been through basics, one can infer that investing in mutual funds is an easy way of playing safe in equity especially you being unaware of tactics of stock markets because it provides professional expertise of fund managers who make investment decisions based on constant study and market research. Besides this, it offers benefits like diversification of portfolio. Since mutual fund is a collective investment vehicle, they have an option to invest in different sectors of market like retail, real estate in addition to options like debt and commodities market. This reduces the risks to which an individual investor would have been exposed if a particular sector is in period of downfall. The simplicity of investment and various benefits offered have made them so popular that can be seen from their growth in past. They came into picture in 1963 with 67bn assets under management (AUM) compared to current figures of 4609.49bn with total of 35 mutual funds available at present and still expected to grow in years to come.

Mutual Funds - Key Entities Involved

Consider yourself a mutual fund company in which millions of investors have invested their trust, not just money with a hope of getting good returns on their investment. The criticality lies in the soundness of fund’s management responsible for meeting the expectations of the investors as well as fund’s financial goal. There are multiple key players at the background working together to achieve this common goal. These players and their role is what we will be scanning through here.