Mutual Funds have always been the most favorite investment options for investors. The people who invest in a mutual fund have less knowledge of the stock market and prefer to invest in the mutual fund. But do you know how the mutual funds work and just by investing a small amount of investment you will be provided actively fund manager who manages your investment.
What is Mutual Fund?
A Mutual Fund is collectively a pool of amount invested and which is managed by the active fund manager. The amount then it is invested according to the particular investor objective of the fund. The investor buys shares in different instruments of different companies. The instrument for investing in equity, bonds, money market instruments and other securities, and each represents ownership and by this, it generates the income.
A Mutual Fund is operated by the Asset Management Company (AMC). In a mutual fund, you buy “units” which represents that who have an ownership in particular schemes. The units which are bought or redeemed for the mutual fund as on the value of Net Asset Value (NAV). All the Mutual Funds are registered with SEBI and follow the strict regulation mentioned by them and created to protect the interest of the investors.
Advantages for Mutual Funds
• Simplicity
Most of the investors do not have the knowledge, time and resources for investment. The mutual fund allows them to invest simply without having too much knowledge, time and fund. By investing a small amount of fund provides diversification and are professionally managed which provides benefit to the investors.
• Diversity
For the beginners, it is always recommended to start investing with the low risky instrument and that is mutual fund as it is professionally managed by fund managers. All the investors need their fund to be parked in the same investment so for that diversification is needed for their fund. By adding more schemes of a m.f., it provides investors with an opportunity to diversify its portfolio.
• Versatility
A mutual fund provides facility to invest almost every segment and which provides versatility and make the investors earn income from it. The versatility is further used for diversification as one’s portfolio grows. Professional fund managers often used sector funds to invest in for making their client portfolio build.
• Accessibility
For gaining access to start a mutual fund a minimum amount can also start your investing. M.F holds a variety of securities and that in many of thousands which means it is easily accessible for a common investor to invest in. The concepts and strategies are easy to understand and can be used by beginners.
Open-Ended and Close Ended Funds
- Open-Ended Funds: These mutual funds buy and sell units continuously and allow investors to enter and exit as per their convenience. The units can be bought and sold at NAV decided by the fund.
- Closed-Ended Funds: The Unit of fund size is fixed and they sell at a specific number of units. The units of the fund may be traded at discount or premium to the NAV depending on the investor expectations of the fund’s future performance.
Know More About: What Are the Different Types of Mutual Funds?
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