A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund—derived by the aggregating performance of the underlying investments.
How Mutual Fund Investment Work ?
Mutual fund schemes are available for fulfilling various investment objectives. You have funds for tax saving, retirement planning, and wealth creation to meet a wedding, foreign vacation, and other expenses like buying a dream car. Based on the investment objective, the pooled money is invested in different assets to generate returns. The most used assets for investment are equity, debt, corporate bonds, and money market instruments. The returns are reinvested for growing wealth or are distributed as dividends.
Features of Mutual Fund Investment
Schemes for Various Financial Goals.
There are 7000+ mutual fund schemes available in the market. These schemes have the potential to fulfil all kinds of financial goals for various risk profiles. These schemes are designed to match financial goals for all life events. For example, marriage, retirement, children’s education, asset (car, bike) purchase, and even for a foreign vacation can be managed through mutual fund investments.
The pooled fund amount is invested across various asset classes to avoid risk arising from a single asset. The performance is not dependent on a single asset class. Thus, investors get a chance to invest in a diversified portfolio through mutual funds. Mutual funds invest in equity, corporate bonds, debt, debentures, and money market instruments like T-Bills, Government securities, Commercial Papers, Certificate of deposits.