What is Mutual Fund, and how it works? Types and investment scheme of it

What is Mutual Fund, and how it works? Types and investment scheme of it

Everyone saves money for their future and wants to invest that money so that their money or property will increase over time. Mutual Funds are a very good way for those who are afraid of the risk of Share Market and the finance market. Many people don't know much about Mutual Funds, so they are afraid to make an investment. So let's tell you in detail about Mutual Funds in this article.

What is Mutual Fund?

In simple terms, it is a collective investment by various expert people. As you know, there are a variety of securities or securities available in the Market to Invest. In common language, they are known as Share, Government Bonds, or Commodity of companies. But because an ordinary person is unaware of the stake in Share Market and he doesn't know when it's profitable to invest in a company's Share or Debenture or other Securities and when they can sell them back in the market and return good income.

Just as companies issue Shares, Mutual Funds release their units. If we have to invest in mutual funds, we have to buy Units of Mutual Funds. Fund Manager, a financial expert at Mutual Funds, invests in a variety of investments or Securities as per the objectives of their expert knowledge and Mutual Fund scheme. Fund managers collect your funds and make them right into various Investment tools such as Company Shares, Bonds, or Saving Schemes, and whatever return they receive are shared with investors in dividends and other ways. Mutual Funds are better for people who don't have much knowledge of Share Market and other Investments or have no time to gather full knowledge of shares and other securities, so they invest in various mutual fund schemes. And mutual funds further invest in stock markets and other securities as per their efficiency and experience.

How do Mutual Funds work?

Most Mutual Funds in India serve as specialized companies called Mutual Fund companies to make investments. These companies make investments in Shares, IPO, Bonds or Debentures and Bonds, etc., available in the Investment Market on behalf of investors. Those who take care of these funds are called fund managers, and they understand the ups and downs of the Investment market as experts very well. Fundus managers make investments for the purpose of earning the most income of the funds that are planned according to the market mood. Mutual Funds companies are solely responsible for units of investment made under mutual funds. In addition, these companies also provide you with services that make your investment process more simple and intuitive. These services include financial tips and advisors for Mutual Funds, customer services, accounting, marketing, and sales, etc.

Lump-sum and SIP:

Investment in Mutual Funds can be made in two ways- Lump Sum and SIP (Systematic Investment Plan). In a lump sum investment, you buy Mutual Fund Units at a time from your deposit savings at the right time while a certain amount in SIP is transferred from your bank account to Mutual Fund every month. And at that time, you get Mutual Fund Units at the market price. Sip Schemes are very popular nowadays due to simpleness.

Types of Mutual Funds: 

It is important to know the basic facts of investment in Mutual Funds. The most important thing is to know exactly how many types of Mutual Funds are. For payment of funds, mutual funds can be divided into the following three parts:

Open-End Fund:

Mutual Funds funds of this type are the best in terms of Liquidity. These funds are available to the investor for purchase and sale throughout the year. Based on Net Asset Value (NAV), these funds can be purchased or sold directly from the mutual fund company at any time in a year. The main reason for this is that these funds can be subscription and Redemption at any time. Due to the non-fixed date of maturity of these funds, the liquid cash is available with the investor as Liquid Cash.

Close-End Fund:

Redemption of such funds can be based on a certain date – this date can be from 3 to 6 years. These funds are available for application for a certain time shortly after launch. These funds are listed in Stock Exchange and can be purchased and sold at any time in Exchange Stock once they are fully subscribed.

Interval Fund:

These funds come with mixed benefits of Open and Close end funds. These funds can be traded with the help of stock exchange and are available on a pre-determined time interval for sale or Redemption based on prevailing Net Asset Value (NAV).

Investment scheme of Mutual Fund:

From the investment point of view, Mutual Funds can be divided into the following five parts. Various mutual funds extract similar schemes:

Equity or Growth Fund:

Investors who are keen on long-term capital gain or growth and are fully aware of the profit and loss of market risk want to invest in such a fund scheme. In this scheme, the entire fund is made an investment in the equity share of the market. The scheme maximizes both profit and risk.

Debt or Income Mutual Fund:

The scheme is best for investors who want to earn maximum investment income without taking risks. Funds collected under the scheme are made in corporate debt schemes and government loan scheme. The return of funds invested in this Mutual Fund is almost guaranteed, and the risks are very low.

Balance of Mutual Funds:

The funds collected in such funds are made an investment in both equity and debt. In this scheme, fund managers make investments in equity markets, keeping in mind the volatility of the investment market to allow investors to earn as much income as possible.

Liquid Funds:

This fund is best for investors who want to earn investment income safely in the shortest time. Under this scheme, investment managers investment funds in the scheme of Certificate of Deposit, Treasury and Commercial Paper, etc. available for a period of 91 days or less.

Gilt Funds:

This fund is considered to be the most secure as the money collected in this fund is made an investment in government schemes. Investors' funds are considered completely safe in these schemes due to the support of the government machinery.

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