What is a Mutual Fund?
Mutual fund is the common pool of money from multiple investors used to invest in equities, stocks, bonds, and other securities. The income generated through it is equally shared proportionately among the invested public as per the Net Asset Valu-NAV. Managed by asset management companies or fund managers, all the mutual funds are registered with SEBI and they function as per its regulations.
Types of Mutual Funds
There are different types of mutual funds and furthermore, they are divided into many sub-categories. Broadly they are classified into open-ended, closed-ended, actively managed, and passively managed.
Open-Ended Mutual Funds
An open-ended mutual fund is available to enter or redeem at any given point in time. These funds do not have a fixed maturity period.
Closed-Ended Funds
These funds are available for subscription only during the initial period (IPO), New Fund Offer or NFO period. These funds can be redeemed only at maturity.
Actively Managed and Passively Managed Funds
In the actively managed scheme, the fund manager or the money manager continuously monitors the fund portfolio and he or she judges whether to buy, sell or hold stocks based on their expertise and judgement. Whereas a passively managed fund simply follows the market index and the fund manager doesn’t have to perform any significant role.
Mutual Funds Available in India
- Equity funds
- Sector-specific/Thematic funds
- Index funds
- Tax saving funds
- Money market funds
- Liquid funds
- Fixed income or debt mutual funds
- Balanced funds
- Hybrid / Monthly Income Plans (MIP)
- Gilt funds
Benefits of Mutual Funds!
- Diversification
- Liquidity
- Professional Management
- Tax Benefits
- Higher ROI
- Easy to Invest