Meaning Of Mutual Fund

Meaning of Mutual Fund

A mutual fund is a trust that pools the savings of a number of investors who share a common the financial goal. The income earned through this investment and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. The money thus collected and then invested in capital market instruments such as the debentures, shares, and other securities. Thus the mutual fund is a most suitable investment for the common man as it offers an opportunity to invest in a diversified way, the professionally managed though basket of securities at a relatively low cost.

Mutual Fund Operation Flow Chart

Now let’s understand how it differs from portfolio management. While in

Loss of Control:- The managers of mutual funds make all of the decisions about which securities to buy and sell and when to do so. You also should remember that you are trusting someone else with your money when you invest in a mutual fund. This can make it difficult for you when trying to manage our portfolio. For example, a tax consequences of a decision by the manager to buy or sell the asset at a certain time may not be optimal for you.

6. Trading Limitations:- Although mutual funds are highly liquid in general, most mutual funds (called open-ended funds) cannot be bought or sold in the middle of the trading day. Trading limitation is you can only buy and sell them at end of the day, after they have calculated current value of that their holdings.

7. Size:- Some mutual funds are too big to find as enough as good investments. This is an especially true of those funds that the focus on small companies, given that there are allowed to an strict rules about how much of a single the company a fund may own off. If a mutual fund has $5 billion to invest and is only able to invest an average of $50 million in each, then it needs to find the at least 100 such companies to invest in; the fund might be forced to lower its standards when selecting companies to invest in as a

Inefficiency of Cash Reserves:-Mutual funds usually maintain large on cash reserves as protection against a large number of simultaneous withdrawals. Ineffective and efficiency of although this provides investors with the liquidity, it means that some of the funds money is invested in cash instead of assets, so which tends to lower the investor 's potential return.

9. Different Types:- Different types of mutual fund are the different risk and return bearing capacity of the funds hold those have some of, the advantages and disadvantages listed above apply to mutual funds in general. However, there are over 10,000 of mutual funds in operation, and these funds varies in greatly the according to investment size, objective, strategy, and style. Mutual funds are available for the virtually every the investment strategy (e.g. value, growth), every sector (e.g. biotech, internet), and every country or region of the world. The process of selecting the mutual fund can be