Basics of Mutual Funds
Uploaded by bardia on Mar 07, 2005
Original Post : 15-08-04; Reposted on 07-03-05
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciation realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy.
Types of funds
on the basis of investment portfolio :
Balanced fund
A fund that invests substantially both in debt and equity.
Debt fund
A fund that invests in debt securities like Government securities, Treasury Bills, corporate Bonds etc. These funds are generally preferred by investors wanting steady income and not willing to take higher risks
Factor Fund
It is a mutual fund that has a core philosophy of investing in a particular factor or style in the market. They are also referred to as Style Funds. Examples of factor funds are Mid-cap funds, Low
P/E funds, Growth funds etc
Gilt fund
Funds that invest predominantly in government securities and treasury bills. It is good for investors who desire safety of principal and adequate liquidity.
Equity/Growth fund
A fund that invest primarily in equities and has capital appreciation as its investment objective
Income Fund
A fund that usually invests in debentures, bonds, and high dividend shares. Preferred by investors who wants regular income. It pays dividends to the investors out of its earnings
Index Fund
A fund whose portfolio is benchmarked against a popular index like the BSE Sensex or the BSE Natex. Such an investment philosophy reflects the belief that the market is efficient and trying to beat the market over the long term is futile
Liquid Fund
A fund that invests its corpus in short term instruments like call markets, treasury bills, Commercial Paper (CP), Certificate of Deposit (CD).
Vulture Fund
It is a fund that takes over the non-performing assets of bank or financial institution at a discount and issues pass-through units to the...