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Key Features

Key features of a mutual fund 1. Pooling Of Resources:   By pooling their investments, individuals are able to gain access to a diverse array of assets through mutual funds. This collective approach enables participation in investment opportunities that may otherwise be unattainable for those investing independently. 2 . Professional Management:   Mutual funds are overseen by professional fund managers with the necessary expertise to manage investors' capital effectively. These managers are equipped with the resources required to diligently monitor their investments and to rebalance their portfolios per the specific objectives of the fund. 3. Risk Diversification:  Mutual funds provide investors with the opportunity to diversify their portfolios across a variety of assets, including equity, fixed income, money market instruments, and commodities. This diversification serves to mitigate the downside risks typically associated with concentrating investments in a singl...
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Mutual Funds - Concept

What is a Mutual Fund?

As per Association of Mutual Funds in India (AMFI), a mutual fund is a pool of money managed by a professional fund manager. It is a trust that collects money from multiple investors. The money so collected is invested in a diversified portfolio of securities comprising equities, bonds, money market instruments, etc. Finally, the earnings generated from these investments are distributed proportionately among the investors. 

In a nutshell, a mutual fund is created by combining the contributions of many investors, enabling them to access a professionally managed and diversified portfolio. 

Let's understand the concept with an example.    

Let's say there is a box consisting of 20 apples. The box costs ₹100. A group of 4 friends went to the shop to buy 10 apples. But the shopkeeper will sell the box as a whole. The friends decided to pool in ₹25 each. Together, they bought the box worth ₹100. Cost of one apple is (100/20) equals 5. As each friend contributed ₹25, each will get 25/5 equals 5 apples. 

Using mutual funds terminology, the net asset value or the price per unit of the scheme is 5 (cost of one apple) and the no. of units (no. of apples) that the investors (here, the friends) received is 5. The initial investment therefore is, 5*5 (price per unit * no. of units) equals ₹25. 

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Key Features

Key features of a mutual fund 1. Pooling Of Resources:   By pooling their investments, individuals are able to gain access to a diverse array of assets through mutual funds. This collective approach enables participation in investment opportunities that may otherwise be unattainable for those investing independently. 2 . Professional Management:   Mutual funds are overseen by professional fund managers with the necessary expertise to manage investors' capital effectively. These managers are equipped with the resources required to diligently monitor their investments and to rebalance their portfolios per the specific objectives of the fund. 3. Risk Diversification:  Mutual funds provide investors with the opportunity to diversify their portfolios across a variety of assets, including equity, fixed income, money market instruments, and commodities. This diversification serves to mitigate the downside risks typically associated with concentrating investments in a singl...
Post a Comment
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