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What is Mutual Fund?


Mutual Fund: It is a pool of different investors money to invest in a investment portfolio and it is managed by professional investment manager. The managers invested the investors fund in a different securities or investment portfolio which helps to maximise the return and minimise the risk after analysing the securities performance in different market conditions. They manage the portfolio or securities on behalf of investors.

The types of funds available in mutual funds are:
Fixed income funds: These funds include debenture, corporate or government bonds which provide regular income to its investors in the form of interest. It is less risky funds and provides low return.
Equity funds: The funds are invested in stocks of a company for longer period. These funds are used when the investor wants to increase his wealth. The stocks are risky in investment but it provides high return.
Balanced Funds: These funds include both fixed income funds like bonds, debenture and equity funds like stocks. If investor wants a regular income and capital appreciation both then balanced funds are used. In which funds are invested in both securities.
Special funds: The funds are invested in special events like program to sustain the environmental resources, program to educate for stop using alcohol, tobacco etc.
Money market funds: These funds include treasury bills, commercial paper etc. The funds invested in these funds by investors who want short term liquidity in its investment instruments. It means the investment instruments have short maturity period.
Index funds: The funds are invested in indexes which are exchange traded funds. There is a low operating cost.  The funds are affected by market situations.
Funds of funds: The funds are invested in funds like asset allocation funds etc.

  Advantages of mutual fund:
  Managed by professionals:
  The funds are managed by professionals who have knowledge of a market and also having an experience of the different funds performance in a different market conditions. The individuals don’t have such knowledge of market.
 Low cost: The cost of managing the funds of an investors is low like if funds are invested in a index funds then when the market goes up and down the prices of stocks moves according to it. There is no much research is conducted.
Tax benefit: Some funds are deductible like interest on debentures, bonds etc.
Transparency: The transactions related to the investment securities are fully transparent. The investors get full information about their investment performance and how the managers used their funds.
Government regulated: It is regulated by Securities Exchange Board of India (SEBI). So, the rights of the investors are fully protected and the chances of fraud is minimises. There are some rules and regulations to meet the grievances of investors if it happens.
Diversification: The funds are invested in different securities to reduce the risk and maximise the return on that investment.
Liquidity: According to the investors objective funds are invested in different securities portfolio. If any investor wants cash immediately he or she can sell the investment securities any time.

Disadvantages of Mutual fund:
Cost: There are some hidden costs which are associated with the fees paid by investors to fund managers who manage their funds.
Fund locked: Not all the funds are available at the time investors want for withdrawal. Some funds are locked for fixed period till that period the investors are not able to with the funds.


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