Skip to main content

Concept of Mutual Fund

What is Mutual Fund?

A MUTUAL fund is an organization that pools the savings of a number of investors called as unitholders who share a common goal. 

The capital market is information sensitive market. A small piece of information could lead to market fluctuations. A small investor may not be aware of such movement and fluctuation and as a result, he/she normally make a loss in the capital market. A retail investor can directly invest in the capital market or invest through a mutual fund.
Mutual Fund

A mutual fund is a perfect investment vehicle in today's complex financial scenario. Price changes in the financial assets are driven by so many events (i.e both national and international events). An ordinary investor is unlikely to have the knowledge, skills and time to understand the impact of these events and to act accordingly. It is also difficult for him to keep track of various investments. Investment in mutual funds takes care of all these problems.

The money collected is invested by the professional fund managers in different types of securities depending upon the objectives of the scheme. The return or loss on investment is shared by the unitholders. It is shared in the proportion to the number of units owned by them. A mutual fund offers an opportunity to invest in a diversified and professionally managed portfolio at a relatively low cost.


MUTUAL FUND SCHEMES

There are various types of mutual fund schemes as per the needs of investors of different age-groups, having different financial positions, risk tolerance and return expectations. Each scheme has a pre-determined objective. On the basis of their structure, all mutual fund schemes can be divided into 2 categories:

 (1) Open-ended: Under this scheme, the investor can make entry and exit at any time. These schemes do not have a definite redemption period (i.e maturity period). Investors can buy and sell units at the net asset value based price at any time. The basic feature of this type of scheme is liquidity.

(2) Close-ended: Under this scheme, the investor can invest their fund during the Initial Public Offering (IPO) or from stock market after the units have been listed. A close-ended scheme has a stipulated maturity period.





The significance of Mutual Fund.

Mutual funds are important segments of the financial market. They channelize the savings and invest in the financial market, mainly in capital market and money market. The ordinary investor has neither skill nor time to recognize the investment opportunity and act immediately. MFs, on their behalf, make use of investment opportunities to earn attractive returns. They provide a good balance of risk and return with different options to suit the various needs of various investors.


Benefits of investing through Mutual Fund
  • Professionally managed portfolio
  • Transparency
  • Diversified portfolio
  • Simplicity
  • Low cost of investment
  • Liquidity

However, the investors in the Mutual funds depend on the skill, experience, and analysis of professional managers. The returns on their investments depend on the fund manager's skill and judgment. Investors invest their money in the Mutual funds on the basis of the faith they have in some Mutual Fund Manager.

Also read:

Labels:
Location: United States

Comments

Post a Comment

Popular posts from this blog

Financial Statement Forecasting

Financial Statement Forecasting Financial Statement Forecasting The financial statement forecasting begins with  the forecasting of the future estimates that are made through preparation of statement like projected income statement, projected balance sheet, projected cash flow and fund flow statements, cash budget, preparation of projected financial statements with the help of ratios etc. Financial statement forecasting is useful in making various financial decisions like capital investment, annual production level, operational efficiency required, requirement of working capital, assessment of cash flow, raising of long term funds, estimation of funds requirement of business, estimated growth in sales etc. When we forecast the financial statement we forecast the Profit and Loss and Cash Flows. From these financial statements, we get the forecasted Balance Sheet. When we prepare the Profit and Loss, we start from the sales figures. For forecasting the sales figure...
Post a Comment
Read more

Things You Need To Know Before Getting A Mortgage

Buying a house is one of the biggest financial decisions a person can make. It’s hard to understand where you should begin or what the most important things are to consider when it comes to taking out a mortgage Whether you want to purchase your first home, an investment home, or a vacation home, it’s important to know what you need to know before getting a mortgage. First and foremost, know your credit score and be prepared to explain your credit history. Your credit score is one of the most important factors when it comes to a lender making a decision whether to grant you a mortgage. While it can take time to improve your credit score, it’s important to address any red flags that lenders may see during their review. Pay close attention to your score and start improving it as soon as possible if you find any discrepancies. Next, know your overall financial situation and determine how much you can afford. You’ll need a financial buffer and it’s advisable to have access to funds for mai...
Post a Comment
Read more

Fundamental Analysis of Stocks

Q1. What is fundamental analysis? Answer: Fundamental analysis is the detail evaluation and analysis of the entity’s financial statement. It provides the information regarding the entity’s operation. With the help of financial analysis tools, one can easily forecast the company’s future. It gives the bird’s eye view of the performance and growth of an organization. Q2. What is a fundamental analysis of the stock? Answer: Apart from the technical analysis as we have discussed earlier, fundamental analysis is the detailed study of both macroeconomic and microeconomic factors that affect the company’s share price in the secondary market (i.e. stock exchanges).  In order to determine the fair value of the shares, we have to calculate the intrinsic value of the shares. Various fundamental analytical tools help an investor to determine the intrinsic value of the stocks. Q3. What are the major components of the fundamental analysis? Answer: Fundam...
Post a Comment
Read more