What is Mutual Funds

WHAT ARE MUTUAL FUNDS ?

Mutual funds are investment vehicles that are finding a greater acceptance among investors across the country. Their scope is expanding with investors getting a larger bouquet of schemes to choose from. However, to make an informed choice, the investor needs to understand the characteristics of the fund, which determine the kind of returns it generates and the risk that will arise during the course of the investment.

A mutual fund is a vehicle that invests in various assets on behalf of its unit holders. Under the scheme, a large number of investors come together and pool their money. This sum is then invested by professional fund managers according to the investment objective of the scheme. The investors, who put their money into a scheme, get units and are known as unit holders. Since the denomination of the holding of the investor is units, there is no need for them to be rounded off. Therefore, one will find holdings in decimal places.

Thus the mutual fund entity allows small and individual investors to get the benefits of a diversified portfolio. It also gives the unit holders access to several investments that might have been out of their reach for want of funds. The value of the investment is known as the net asset value (NAV) of the scheme. The NAV is calculated on the value of the holdings of the scheme. Investors can redeem and buy additional units depending upon the specific nature of the fund and these transactions take place at values related to the NAV of the scheme.