What is a Mutual Fund

What is a Mutual Fund?

A mutual fund mainly refers to ‘a financial instrument that collects money from various investors and invests these amounts in different instruments like equities, bonds, money market securities or combination of these. In other words, we can say a mutual fund is a collection of stocks and bond which is managed by fund manager or a company that we hire, and for that we pay a certain amount of money to them. The main advantage of mutual fund investment is saving time to study the market trends and also comparatively lower riskier than the investment in the stock market.

Mutual fund is usually a pooled investment vehicle which is actively managed either by professional fund managers or passively tracked by an index or an industry. Mutual funds are well diversified to offset potential losses as they offer an attractive way for savings. The price at which mutual fund units are allotted is called Net Assets Value (NAV). A mutual fund investment provides more stability to our portfolio as its NAV changes just once a day unlike the stocks. For example, if the market value of securities of a Mutual Fund scheme is 1000 lakh and the Mutual Fund has issued 10 lakh units of 10 each to investors, then the NAV per unit of the fund is 100.

Types of mutual funds

Equity funds

Debt funds

Hybrid funds

Exchange traded funds (ETF)

Fund of funds (FOF)

Tax saving funds

Balanced funds