Mutual funds are the instrument of investment in which the money of one person is collected and invested by another person and the positive returns are produce to the investor. Generally, the money from many investors are collected by the money managers and invested on behalf of a group. The investment is done on the basis of the set of objectives framed b y the group. Each mutual fund scheme is different from one another in their goals and thus the nature is also different. The different types of securities in which the collected money from different investors is invested are stocks, bonds, money market instruments and similar ones.
The income from these funds is divided among the unit holders in proportion to the number of units they own. The main highlight of this scheme is the management of investment by the professional money managers. The low cost investment also attracts people in which few thousands can also be invested in the schemes based on the objective and strategy of particular schemes. The different classifications of mutual funds are:
- Open-end funds
- Closed-end funds
- Interval funds
- Growth funds
- Income funds
- Balanced funds
- Money market
- Mutual fund- stock
- Mutual fund- bond
- International schemes
- Tax saving mutual funds
- Index schemes
- Sectoral fund
- Domestic funds
- Offshore funds
- Gift funds
- Cap funds (small, medium, large)
- SIP
The main advantages of mutual fund schemes are the professional management, diversification of portfolio, convenience; higher return potential, low costs, liquidity, transparency, flexibility, affordability, benefits of tax, well regulation and availability of different schemes. These features make the scheme more acceptable by the common people.
Although there are many merits the drawbacks associated with the scheme also exists like lack of insurance, poor performance and many more.