A mutual fund is an investment scheme that holds assets such as stocks/bonds or a combination of two. The portfolio of securities held under the fund comes with a variety to suit the needs of diverse investors. For example, risk-averse investors can opt for a mutual fund account with fixed-interest bonds as they are safer and pay a regular income. Additionally, those with a medium risk appetite can go for a mixture of equities and bonds. If the stock market crashes, your loss can be somewhat offset with the fixed interests of the bonds. Risks and profits are shared amongst investors. Most funds allow the investor to sell off their shares at any point they want, bringing in liquidity. Also, typically, an Asset management Company (AMC) undertakes investments with the fund manager overlooking the fund management.
- A mutual fund is a diversified investment scheme whereby each investor owns a partial share of the securities bundle in which typically an asset management company (AMC) invests their accumulated funds.
- It is professionally handled by the fund manager whose job is to ensure optimum returns to the investors as per the fund objectives.
- In return, investors pay certain charges such as the total expense ratio. Charges could vary as per companies but many involve management and transaction fee.
- These funds are available under the systematic investment plan (SIP), where investors contribute funds in the scheme through small fixed amounts payable every month. However, an investor can opt for a lumpsum investment too.
- It is a lucrative opportunity for early investors and middle-and high-income groups as it provides diversification, tax-saving, liquidity, and affordability.