Some of you have already know about mutual fund and also invested in mutual fund. So I hope if you have invested your money in mutual fund properly then surly you are getting better return. Many of you will be agree with me.
Those who don’t know about mutual fund, here I am going to provide you some details on mutual fund.
Mutual Fund Basics:
Mutual Fund is a fund in which money pooled by large number of investors. This Fund is managed by professional manager, who uses him investment skills to invest money in various financial instruments like bonds, shares, Govt. Securities etc. If he invest the money in some combination of these type of securities, then it is called as ‘Portfolio’ of the Mutual Fund.
Types of Mutual Fund:
There are different types of mutual Fund exists in Money Market. An Investor chooses the type of the Mutual Fund based on his needs i.e. whether he wants to invest his money for a short- term period or a long-term. There are three basic type of Mutual Funds which are more popular among the investors –
- Open-ended Mutual Fund- These are the most common type of Mutual Funds. These are the funds which sell shares on a continuous basis (mostly everyday), purchased from the Fund & Redeemed by the Fund. In these type of funds, there is No Legal Limit on the number of shares that can be issued.
- Close-ended Mutual Fund –These are the Funds which sells a ‘Fixed Number’ of shares at one time through an initial ‘Public Offer’. These shares are then listed to Stock Exchange for Trading. If Investors want to sell their share, they cannot sell it back to the Fund, they have to sell it to another investor.
- Unit investment trusts – These are the Fund which make a ‘One-Time’ Public offer for a Fixed Number of Redeemable securities with a limited life, this can be redeemable on or before the termination period. UITs can be traded in open market but they do not have a professional Fund manager.
There are some other type of Mutual Funds other than these 3 funds mentioned above. Money Market Fund, Exchange-traded trusts, Bond Funds, Stock Fund, Liquid and Hybrid Funds etc. are some example of it.
Advantage of Mutual Fund:
Mutual Funds are a good source of investment for short-period as well as Long-Period, still there are some advantages and Dis-advantages of it based on different circumstances.
Here are some of these –
Diversification- Mutual Fund have a diversification in wide range of companies therefore many investors find it less expensive to achieve.
Low Minimum Investment – Mutual Funds provides the facility to small type of Investors to invest at a lower amount so it reaches out to a large number of investors. By investing at lower amount, it minimizes the investment risk as well.
Professional Management – Mutual Funds are creates by Professional Management having high investment skills. They invest the Fund Money in various securities and market using these skills.
Disadvantages of Mutual Fund:
As we have seen that there are many advantages of mutual fund but still there are some disadvantages:
Lack of Control –The investors has a lack of control over the portfolio of the fund. In other words they cannot directly influence as to which securities are included in the portfolio of the fund.
Price Uncertainty – In case of a Mutual Fund, the price at which an investor purchases or redeems shares depends on the fund’s NAV. It takes many hours to calculate the NAV so the price remains uncertain even after many hours of placing the order.
There are some important things that should be considered before investing in a Mutual Fund as it carries some market risk elements. The investor should make a strategy based upon his purpose of investment, the time period for which the investment has to be made and the minimum return which he expect from the investment. For this you should go for a market analysis and you can also take help from experts before investing.