InvestorQ : What is mutual fund ?
Nandukumar made post

What is mutual fund ?

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nishi Shah answered.
1 year ago

Mutual fund collects money from small investors and creates a fund to invest that amount in the market in different stocks, securities, and bonds on behalf of the investor. This investment in a different asset is known as diversification, which helps to minimize the risk and get a good return. Mutual funds are professionally managed by Fund Manager, having an in-depth knowledge about the market. So, when you invest in a Mutual fund you invest in different types of investment avenue with your limited fund by using the professional skill of the fund manager.

For example, if there are 2 people, Mr. A and Mr. B who are having Rs. 100 each for which they are looking to invest in the financial market. Now further assume that any in a single investment option will require Rs. 100. So, with Rs.100 they can only invest in one investment option and thereby be exposed to risk. However, their mutual friend Mr.X, who is a financial advisor, advice them to invest their Rs. 100 in XYZ Mutual fund, which invests has a diversified portfolio and invest in 3-4 investment avenues thus reducing the risk. As advised, Mr. A and Mr. B both invest their money in XYZ Mutual Fund and by investing a minimal amount they are able to invest in 3-4 options in a diversified portfolio. This is a simple example on working of mutual funds.

In addition to a diversified portfolio, Mutual fund investment is quite transparent and so one can easily monitor your investment. Every Mutual fund maintains a single detail of the money invested, growth, performance, etc. and publish on a weekly and monthly basis. These reports can be viewed on the Mutual fund company's website or can be collected manually taken from the local branch by filling a form or by written request.

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