Mutual Fund

A mutual fund is a pool of money managed by a professional Fund Manager. It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities. And the income / gains generated from this collective investment is distributed proportionately amongst the investors after deducting applicable expenses and levies, by calculating a scheme’s “Net Asset Value” or NAV. Simply put, the money pooled in by a large number of investors is what makes up a Mutual Fund.

Mutual funds offer an excellent avenue for retail investors to participate and benefit from the uptrends in capital markets.

It is a type of investment encompassing of a portfolio of stocks, bonds and other securities. It gives small or individual investors access to diversified professionally-managed portfolios.

Mutual funds are categorized depending on the kinds of securities they invest, their objectives, and the return they seek. They charge annual fees, expense ratios or commissions, that will affect the overall returns.

Just like an equity share has a traded price, a mutual fund unit has Net Asset Value per Unit. The NAV is the combined market value of the shares, bonds and securities held by a fund on any particular day (as reduced by permitted expenses and charges). NAV per Unit represents the market value of all the Units in a mutual fund scheme on a given day, net of all expenses and liabilities plus income accrued, divided by the outstanding number of Units in the scheme.

Mutual funds are ideal for investors who either lack large sums for investment, or for those who neither have the inclination nor the time to research the market, yet want to grow their wealth. The money collected in mutual funds is invested by professional fund managers in line with the scheme’s stated objective. In return, the fund house charges a small fee which is deducted from the investment. The fees charged by mutual funds are regulated and are subject to certain limits specified by the Securities and Exchange Board of India (SEBI).Retirement plans mostly invest in mutual funds

Types of Mutual Funds are:

• Stock Funds

• Bond Funds

• Index Funds

• Balanced Funds

• Money Market Funds

• Income Funds

• Global Funds

• Specialty Funds

• Exchange Traded Funds

* Fund of Funds

A mutual fund has annual fees or shareholder fees. However, sometimes a no-loan mutual fund is offered by a company. Some funds charge for early withdrawals or for selling earlier. On a main note, they do offer a variety of offerings, but they lack transparency in holdings.

Mutual Fund schemes could be ‘open ended’ or close-ended’.

Open-Ended Funds

An open-end fund is a mutual fund scheme that is available for subscription and redemption on every business throughout the year, (akin to a savings bank account, wherein one may deposit and withdraw money every day). An open ended scheme is perpetual and does not have any maturity date.

Closed-End Funds

A closed-end fund is open for subscription only during the initial offer period and has a specified tenor and fixed maturity date (akin to a fixed term deposit). Units of Closed-end funds can be redeemed only on maturity (i.e., pre-mature redemption is not permitted). Hence, the Units of a closed-end fund are compulsorily listed on a stock exchange after the new fund offer, and are traded on the stock exchange just like other stocks, so that investors seeking to exit the scheme before maturity may sell their Units on the exchange.