There is no such legal definition of mutual fund but we can say that these are professionally managed investment fund which pools money from investors to purchase securities.The mutual Funds industry of India is growing at a faster pace. Mutual Funds can be termed as a form of trust that manages money collected from various investors for the purpose of investing it in various assets to achieve certain financial goals. Mutual fund trust usually collects money from large number of investors and reinvest that money to earn huge profit. This profit is then divided equally among investors. A mutual fund is more or less different than investment option to bonds and stocks rather it pools money of several investors and invest their money in stocks, bonds, money market and various other services.The owner of mutual fund gains a proportional share of profit, loss, income and expenses.In return of these services some fees is charged by Asset Management Companies i.e. the firm which puts together the mutual fund.
Objectives of Mutual Funds:
There is a specific objective associated with every mutual fund. The investors of a particular Mutual Fund shares the same objective. Generally Mutual Funds invest in bonds, stocks, call money debentures etc. but now a days some Mutual Funds even invest in gold or other assets.
- Equity (Growth)
- Debt (Income)
- Money Market (Including Gilt) Balanced
- Investment Objectives may vary depending upon mutual fund schemes.
An important term used in mutual is NAV (Net Asset Value). In case of mutual funds the current market value of each investment is calculated on daily basis. The NAV is flexible and keeps on changing according to the market value of stocks and bond market. Therefore, investment in mutual fund is little risky but it can surely give high regular return if planned and managed properly.
Types/ Category of Mutual Funds:
Mutual funds can be categorized under following heads:
- According to type of investment: During the announcement of any scheme every mutual fund is supposed to declare in the prospectus, the kind of instrument it is going to use to invest the collected money. Various schemes of mutual funds based on the type of investment are as:
- Equity Funds/Schemes
- Debit Funds/Schemes
- Diversified Funds/Schemes
- Gilt Funds/Schemes
- Money Market Funds/Schemes
- Sector Specific Funds
- Index Funds
- According to the time of closure of scheme: While launching new schemes, it is also declared by mutual funds whether it is an open ended scheme or there is any closing associated when the scheme will finally wind up. Based on this schemes are as:
- Open ended schemes
- Close ended schemes
- According to Tax Incentive Schemes: Sometimes schemes are launched with a concept of saving taxes. These are classified as:
- Tax saving Funds
- Non tax saving Funds/other funds
- According to the time of payout: Sometimes some mutual fund schemes are also categorized on the basis of periodicity i.e. dividend etc. they are as:
- Dividend paying schemes
- Reinvestment schemes
With these schemes you have a number of options to move on with. Depending upon your choice you will get the dividend upon investment but your choice should be planned in such a way that you are ready to bear the risk.
To know more about the mutual funds, you can visit its wikipedia page : Click Here