A Mutual Fund is a body corporate registered with SEBI. It can thus be considered as financial intermediaries in the investment business that collect funds from the public and invest on behalf of the investors. Mutual funds issue units to the investors.
It is a collective investment scheme that collects money from many investors and invests it in stocks, bonds, short-term money market instruments and other securities. Mutual Funds are managed by a fund manager who invests the money on behalf of the investors by buying / selling stocks, bonds etc.
Benefits of mutual funds
It is easy and beneficial for an investor to invest in mutual funds as it has following advantages:
- Investing in mutual fund scheme removes the burden of investors because its responsibility is taken by mutual fund agency.
- Mutual fund agency invests in stocks and shares after due analysis and research which in return remove the burden of investor to research hundreds of stocks.
- The important benefit of mutual fund is that it offers diversification as investor’s money is invested by the mutual fund in a variety of shares, bonds and other securities thus diversifying the investor’s portfolio across different companies and sectors.
- This diversification reduces the overall risk of the portfolio.
- It is less expensive to invest in a mutual fund since the minimum investment amount in mutual fund units is fairly low (Rs. 500 or so).
- Investors are also given the option of getting dividends, which are declared periodically by the mutual fund, or to participate only in the capital appreciation of the scheme.