A mutual fund is a body corporate registered with SEBI ( Securities and Exchange Board of India) that pools money from thousands of investors and invests the same money in a variety of different financial instruments or securities such as equity shares, bonds, debentures, government securities etc.The appreciation of the portfolio or securities in which the mutual fund has invested, the appreciation in the value of the units held the investors. The investment objectives disclosed by a mutual fund in its prospectus are binding on the mutual fund scheme. The investment objectives specify the stocks a mutual fund can invest in. Mutual funds invest in various type of assets like equity, bonds, debentures and government securities. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. The schemes offered by mutual funds vary from fund to fund. Some are pure equity schemes, others are a mix of equity and bonds. For example Index funds, growth funds, balanced funds, Income funds, sector funds etc. Investors are also given the option of getting dividends, which are declared periodically by the mutual funds. Profits or losses are shared by the investors in proportion to their investments. The performance of a particular scheme of a mutual fund is depend on its Net Asset Value (NAV). Net Asset Value is the market value of the securities held by the scheme. Mutual fund schemes classified on the basis of its structure and its investment objective. Open Ended Mutual Funds: An open ended fund can be freely sold and purchased by the investors. Mutual fund provide the facility for buy back of units from investors at the NAV. Open ended funds are suitable for generating income and increase of investment in the short term.Close Ended Mutual Funds: Close ended mutual funds have a fixed number of units and a fixed tenure as 3, 5, 10 or 15 years. After maturity their units are redeemed. These funds provides good appreciation in investment in long term.
Posted on: 31-May-2020 | Posted by: NIFM |
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