Basics of Mutual Funds

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 popular economic aim. The cash thus collected is invested by the fund manager in different types of securities based upon the objective of the scheme. These could variety from shares to debentures to dollars marketplace instruments. The income earned via these investments and the capital appreciation realized by the scheme are shared by its unit holders in proportion to the quantity of units owned by them (pro rata). Hence a Mutual Fund is the most suitable investment for the widespread man as it offers an chance to invest in a diversified, professionally managed portfolio at a comparatively low cost. Anyone with an investible surplus of as tiny as a few thousand rupees can invest in Mutual Funds. Each and every Mutual Fund scheme has a defined investment objective and tactic.

Sorts 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 and so forth. These funds are commonly preferred by investors wanting steady earnings and not prepared to take higher risks

Factor Fund

It is a mutual fund that has a core philosophy of investing in a specific element or style in the market place. They are also referred to as Style Funds. Examples of issue funds are Mid-cap funds, Low

P/E funds, Development funds and so forth

Gilt fund

Funds that invest predominantly in government securities and treasury bills. It is fantastic for investors who wish safety of principal and sufficient liquidity.

Equity/Growth fund

A fund that invest primarily in equities and has capital appreciation as its investment objective

Earnings Fund

A fund that usually invests in debentures, bonds, and higher dividend shares. Preferred by investors who desires typical earnings. 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 place is effective and trying to beat the market place more than the long term is futile

Liquid Fund

A fund that invests its corpus in quick term instruments like call markets, treasury bills, Commercial Paper (CP), Certificate of Deposit (CD).

Vulture Fund

It is a fund that requires more than the non-performing assets of bank or economic institution at a discount and troubles pass-through units to the…

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