Mutual Fund
Mutual Fund is a vehicle that enables a collective group of individuals to:
Investing in a mutual fund is like a group effort. Imagine you, as an individual investor, don’t have a lot of money to invest. But if you team up with friends and pool your money together, you’ll have a much larger amount to work with.
Now, let’s say none of you are experts at investing. Instead of risking your money, you hand it over to a professional who knows how to grow it wisely. This is exactly what an Asset Management Company (AMC) does. They take the pooled money and invest it into different assets, like stocks, bonds, or real estate, based on a shared investment goal.
The result? Everyone benefits from the expertise of professionals and the collective power of pooled funds!
Hence, technically speaking, a mutual fund is an investment vehicle which pools investors’ money and invests the same for and on behalf of investors into stocks, bonds, money market instruments and other assets. The money is received by the AMC with a promise that it will be invested in a particular manner by professional managers (commonly known as fund managers). The fund managers are expected to honour this promise. The SEBI and the Board of Trustees ensure that this actually happens.
Mutual Fund Investment Philosophy
Open-end funds
In open-ended mutual funds, one must be willing to buy back their shares from investors at the end of every business day at the net asset value that is calculated for that day. Most of the open-end funds also sell shares to the public on every business day. These shares are also priced at a particular net asset value (NAV). A professional investment manager will oversee the portfolio, while buying or selling securities whichever is appropriate. The total investment in the funds will be variably based on share buying, share redemptions and fluctuation in the market variation. There are also no legal limits on the number of shares that can be issued.
Close-end funds
Close-end funds generally issue shares to the public just once, when they are created via an initial public offering. These shares are then listed for trading on a stock exchange. Investors, who dont wish any longer to invest in the funds, cannot sell their shares back to the funds. Instead, they must sell their shares to another investor in the market as the price they may receive may be hugely different from its net asset value. It may be at a premium to net asset value (higher than the net asset value) or more commonly at a lesser to net asset value (lower than the net asset value). A professional investment manager will oversee the portfolio, in buying or selling securities whichever is appropriate.
Unit Investment Trusts
UIT or Unit Investment Trusts issue shares to the public just once when they are created. The investors in turn can cash in on the shares directly with the fund or they may also sell their shares in the market. UITs do not have any professional investment managers. Their portfolio of securities is established by the creation of the UITs and does not undergo any changes. UITs in general have a limited life span, which is limited at their creation.
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Open ended funds
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Close Ended funds
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Equity funds
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Debt funds
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Hybrid Funds
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Income funds
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Real asset funds
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Sector Funds
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