Mutual Fund

An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Mutual Fund allows small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The fund's Net Asset Value (NAV) is determined each day,From that NAV,Investors can get value of their Investment.Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Mutual funds are financial intermediaries, which collect the savings of investors and invest them in a large and well-diversified portfolio of securities such as money market instruments, corporate and government bonds and equity shares of joint stock companies. 

Characteristics of a Mutual Fund:

• Investors own the mutual fund. 

• Professional managers manage the affairs for a fee.
  
  
• The funds are invested in a portfolio of marketable securities, reflecting the investment objective.

• Value of the portfolio and investors’ holdings, alters with change in market value of investments.  

Advantages of Mutual Funds:

• Portfolio diversification
• Professional management
• Reduction in risk

• Reduction in transaction cost
• Liquidity

• Convenience and flexibility

Disadvantages of Mutual Funds:

• No control over costs

• No tailor-made portfolios

• Issues relating to management of a portfolio of mutual funds