A mutual fund is a financial instrument that pools money from various investors who share a common financial goal. Whether you have a few hundred rupees or a substantial amount, you can invest in mutual funds.
Investors buy units of specific mutual fund schemes, each with a defined investment objective and strategy. The collected funds are then invested by professional fund managers across various securities, such as stocks, bonds, and money market instruments.
Open-Ended Schemes
These funds have no fixed maturity and offer liquidity. You can buy and sell units at any time based on the Net Asset Value (NAV).
Close-Ended Schemes
These have a stipulated maturity period. You invest during the initial issue, and later trade units on stock exchanges where they are listed.
Interval Schemes
Combining features of open-ended and close-ended schemes, interval schemes have specific transaction and interval periods.
Actively Managed vs. Passive Funds
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Actively Managed Funds
Fund managers actively choose the investment portfolio within the scheme’s objective. These funds aim to outperform the market but come with higher expenses.
Passive Funds
These funds track a specified index (e.g., S&P BSE Sensex) and invest accordingly. Expenses are lower, but they don’t aim to beat the market.
Benefits
Experienced fund managers handle investment. Easily buy or sell units. Regular disclosures of holdings and performance. Some funds offer tax benefits.
Choosing the right fund with strategies
- Risk Tolerance
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Select funds based on your risk appetite (equity, debt, hybrid). Regularly invest a fixed amount.(SIP)
- Investment Goals
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Align funds with your financial objectives. Regularly redeem units.
- Expense Ratios
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Understand costs associated with managing the fund. Invest a lump sum at once.
