A mutual fund is a professionally managed investment product in which a pool of money from a group of investors is invested across assets such as equities, bonds, etc. Professionals handle the investments on behalf of the investors who gain enhanced earnings based on their risk appetite.
The portfolio of securities under the fund can be diversified into many types. For example, there could be a combination of stocks and bonds or only equities/bonds. Securities could also be segmented by industries such as tech or energy.
Key Takeaways
- A mutual fund is a diversified investment scheme whereby each investor owns a partial share of the securities bundle in which typically an asset management company (AMC) invests their accumulated funds.
- It is professionally handled by the fund manager whose job is to ensure optimum returns to the investors as per the fund objectives.
- In return, investors pay certain charges such as the total expense ratio. Charges could vary as per companies but many involve management and transaction fee.
- These funds are available under the systematic investment plan (SIP), where investors contribute funds in the scheme through small fixed amounts payable every month. However, an investor can opt for a lumpsum investment too.
- It is a lucrative opportunity for early investors and middle-and high-income groups as it provides diversification, tax-saving, liquidity, and affordability.
