Mutual Fund Basics

Wealth creation over the years has changed its avenues and area of interest for the investors in India. The prototype investment where

the post offices and typically the scheduled banks through savings and fixed deposits have changed and with the awareness of finance, Mutual fund has become an excellent route to create wealth for the public at large.

“Mutual fund is a pool of money is invested in accordance with the common objective stated before the investment to the investors.”
Here is the concept of mutual fund which is a suitable for the common man as it offers an opportunity to invest and diversified, professionally managed basket of securities comparatively at low cost. The investors pool their money to the fund manager and the fund manager invest the money in the securities and after generating returns passed back to the investors.

The mutual fund has a structure which is regulated by SEBI and the Association of mutual funds of India (AMFI) plays an advisory role for the mutual funds. There are a lot of entities involved in between Unit Holders and SEBI which includes Sponsors, Trustees, Asset Management Company (AMC), mutual fund, Transfer agent and custodian.
Basically there are only two types of mutual fund in the industry:
• Open Ended
• Close Ended

Open ended funds are those where investors sell and repurchases units at all times, commonly known as Unit trusts in UK and mutual fund in USA.
Close ended funds are generally fixed as it makes a one-time sale of fixed no. of units, known as Investment trusts in UK and Investment Company in USA.
There on mutual funds have been divided into more subcategories Load and No-load funds, Tax –exempt and Non –tax- exempt, money market/liquid funds, Gilt funds, diversified debt funds, focused debt funds, High Yield debt funds, Assured return funds, fixed term plan series, equity funds and so on.
The diversification has been broadened with the revolution and mutual fund has become a major investment destination by yielding more returns. I would like to conclude the article with a note that mutual fund as a investment destination is gaining momentum and in future mutual fund must emerge as a strong capital appreciation tool for the purpose of financial planning.

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