A Look at Mutual Funds

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I have come across various interviews where they ask about Mutual Funds & the way they work. The following article would help you get an insight in what they really are.   

What are Mutual Funds ?  

Mutual Funds refers to a fund established in the form of a trust by a sponsor  to raise money through one or more schemes for investing in securities. It is a special type of investment institution, which acts as an investment intermediary that collects money from a large number of people restricted to have a common objective to achieve. A fund is hosted by a fund manager or a team of well experienced bankers who form a diversified portfolio for attaining the objective.

Features of Mutual Funds :

Following are the characteristics of MF 

1.  It is a trust in which a large number of people & most likely investors invest their money to form a pool of large investment. 
2. The amount is then invested in stocks, securities & other types of bonds. 
3. The risk involved is very less, since a fund manager usually opt A diversified portfolio consisting of companies from various sectors like infrastructure, power, banking, IT, etc. 
4.  Mutual funds schemes are accompanied with high returns, easy liquidity, safety & tax benefits to the investors. 
5.  The net income or the total amount received by a fund is distributed over the units held. 
6.  The fund managers are obliged to redeem units at the demand of an investor or at the end of a specified period.

Advantages of Mutual Funds: 

1. There is a portfolio diversification, i.e the amount gathered by the bank is then invested in a large number of stocks of diversified & different sectors. 
2.  Since  the fund is taken care by a fund manager, a professional approach is provided to your investment, this mean the stocks selection is done after proper research & analysis. 
3.  Less risk is present, since there are multiple stocks in a portfolio even if 1 or 2 shares/ securities do not perform well, the over all affect is nil, thus giving good results 
4.  The transaction cost is very low. 
5.  Units of Mutual Funds provide far more liquidity as compared to shares. 
6.  There are numerous amounts of scheme & funds to choose from, if you have some prior knowledge of the stock market you can chose from a diverse section of MF schemes, thus fulfilling your need. 
7.  It’s a comparatively safer option both for an investor & a lay man.

Dis-advantages of Mutual Funds: 

In view of advantages there are some draw backs which are need to be kept in mind. 

1. Costs can not be controlled specifically by an investor. If you are enrolled in a fund, like the funds with load on them, there are certain fees that need to be paid. 
2. For different customers there is no customized payments 
3.  If you do not have some prior knowledge it might be difficult to choose funds from such a large pool of schemes. 

Hope you find the article useful, you can shoot any queries that might be their. I would be happy to help! I would like to thank Shivani & the entire team of Gr8ambitionz for giving me a chance to write articles on the site. Thanks, Take care.All The best to everyone !!

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About The Author                                             

The author is an engineering graduate who has a passion to write articles and short stories on numerous genres. To read more from her you can visit her blog

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