Mutual Fund


A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio.  

Mutual funds are a popular choice among investors because they generally offer the following features:

1. Professional Management -The fund managers do the research for you. They select the securities and monitor the performance.

2. Diversification -“Don’t put all your eggs in one basket.” Mutual funds typically invest in a range of companies and industries. This helps to lower your risk if one company fails.

3. Affordability -Most mutual funds set a relatively low rupee amount for initial investment and subsequent purchases.

4. Liquidity. Mutual fund investors can easily redeem their shares at any time, for the current net asset value (NAV).

As investment goals vary from person to person – post-retirement expenses, money for children’s education or marriage, house purchase, etc. – the investment products required to achieve these goals too vary. Mutual funds provide certain distinct advantages over investing in individual securities. Mutual funds offer multiple choices for investment across equity shares, corporate bonds, government securities, and money market instruments, providing an excellent avenue for retail investors to participate and benefit from the uptrends in capital markets. The main advantages are that you can invest in a variety of securities for a relatively low cost and leave the investment decisions to a professional manager.

Mutual Funds based on Investment Goals

You can also choose a fund based on your financial objective:

Growth funds:

Funds that invest primarily in high-performing stocks with the aim of capital appreciation are considered growth funds. These funds can be an attractive option for investors seeking high returns over a long period.

• Tax-saving Funds (ELSS):

Equity-linked saving schemes are mutual funds that invest mostly in company securities. However, they qualify for tax deductions under Section 80C of the Income Tax Act. They have a minimum investment horizon of three years.

Liquidity-based funds:

Some funds can be categorized based on how liquid the investments are. Ultra-short-term and liquid funds are ideal for short-term goals, while schemes like retirement funds have longer lock-in periods.

• Capital protection funds:

These funds invest partially in fixed income instruments and the rest into equities. This could ensure capital protection, i.e., minimal loss, if any. However, returns are taxable.

• Fixed-maturity funds (FMF):

These funds route money into debt market instruments, which have either the same or a similar maturity period as the fund itself. For instance, a three-year FMF will invest in securities with a maturity of three years or lower.

• Pension Funds:

Pension funds invest with the idea of providing regular returns after a long period of investment. They are usually hybrid funds that give low but have potential to provide steady returns in future.

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