mutual funds.

What is mutual fund and how it works?

In a small paragraph, I explain to you What is a mutual fund and how it works?

A mutual Fund is a Financial Instrument that Polls the money from Investors, to invest in securities like stocks, Bonds, Money market instruments, or other Assets.

In different words, a mutual fund is collecting the money from people like you and me or a poll of people contributing the money for a mutual fund, is going to reinvest in different investment opportunities, like Stocks{eqieties], Debt, or Mutual fund invest in Both equities and both depend on Mutual fund Objective.

A mutual fund is an organization called ASSET MANAGEMENT COMPANY, which is a group of investment professionals with broad market expertise. These experts are called Fund Managers.

They first set the investment objective, evaluate the market risk, set the reward profile then set the investment strategy that was collected from polling of the money.

Mutual funds earn the profit either through Interest or through Bonuses. What earned profit either Interest or Bonus distribute to investors according to their respected investment ratios after deducting the small portion is the Expense Ratio.

Why invest in a mutual fund?

with the simple example, I explained why investing in mutual fund investments is preferable to direct investment in stocks, for example, assume, you want to travel From  Bangalore to Kolkatta by car. You have only two options to reach out from Bangalore to Kolkatta. One is You Driving the car by yourself. You know how to drive the car, you know the Destination, which way to go, And Traffic Rules.

The second option is, hiring a driver. Told him the final destination and the Pay the fees. He knows how to drive the car,  what is the traffic rules, the route, where to stop,  everything.

Same way In direct investment in the share market you should have expertise in it. You are educated about it. In a mutual fund, expertise[The fund manager] takes a decision instead of you.

Types of mutual fund

  • Equity mutual funds.- Mutual fund Institutions[AMC] collect the money from investors to reinvest in stock markets.
  • Debt fund- Low risk and low reward, not invest in share market. That invest in fixed income instruments like Government securities, Govt Bonds, and money market instruments. It is also called an income fund or Bond fund.
  • Hybrid Mutual Funds.-It is reinvestment in little portion in equity and little portion in Debts.
  • solution-oriented mutual funds.-These schemes are concentrated on solution related, for example, child marriage funds, child Education Fund, retirement plans, pension plans, and Children Benefit plans extra.
  • Other Funds.- Other than the above reinvest in different categories like index funds.AMC’s what they collect money from the investors reinvest in Index. like BSE Sensex, and Nifty Index.


For details on equity, and the Flexi cap fund category click below.

Invest in best mutual funds-Paragh Parikh flexi cap fund.




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