Mutual Funds

Basics of mutual funds

The article mentioned below, is for the investors who have not yet started investing in mutual funds, but willing to explore the opportunity and also for those who want to clear their basics for what is mutual fund and how best it can serve as an investment tool.

Getting Started

Before we move to explain what is mutual fund, it’s very important to know the area in which mutual funds works, the basic understanding of stocks and bonds.

Advantages of mutual funds

Mutual funds have advantages compared to direct investing in individual securities. These include:

  1. Increased diversifications
  2. Daily liquidity
  3. Professional investment management
  4. Ability to participate in investments that may be available only to larger investors
  5. Service and convenience
  6. Government oversight
  7. Ease of comparison

Disadvantages of mutual funds

Mutual funds have disadvantages as well, which include:

  1. Fees
  2. Less control over timing of recognition of gains
  3. Less predictable income
  4. No opportunity to customize


What is a Mutual Fund?

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.

Types of Mutual Funds Schemes in India

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below.