Mutual Fund Guide

Mutual Fund Guide

A mutual fund is an investment security that enables investors to pool their money together into one professionally managed investment. Mutual funds can invest in stocks, bonds, cash or a combination of those assets.

How does mutual fund work?

  • A mutual fund pools money from a bunch of different investors in order to invest in a large group of assets.

  • Then their money is invested by the fund manager in different types of securities.

  • The investment that an investor makes in a scheme is translated into a certain number of ‘Units’ in the scheme.

  • The income earned through these investments and the capital appreciation realized by the scheme is shared by its unit in proportion to the number of units owned by them.

Mutual fund advantages to investor

  • Portfolio Diversification- exposure to a range of securities

  • Professional management- simplified process of investing and holding securities

  • Reduction in risk & low transaction cost (Economies of Scale)

  • Liquidity– Highly Liquid than Shares.

  • Convenience and flexibility- transaction flexibility like SIP, SWP and STP etc.

  • Tax benefits- up to 1.5 loch tax benefits under sec 80 c

Structure of funds in mutual fund

  • Open ended Scheme

    • Open for investors to enter or exit at any time, even after the NFO.

    • Post NFO sell and buy through AMC

    • Provide liquidity with No fix maturity period

  • Closed ended scheme

    • Entry at NFO only

    • Post NFO sell & buy through exchange platform

    • Limited liquidity and fixed maturity period

  • Interval scheme

    • Combination of open ended and close ended

    • No redemption /repurchase of units is allowed except during Transaction period

    • Min two days transaction period

Types of mutual fund scheme

  • Equity Schemes – Invest in equity market.

  • Debt Schemes - invest in Debt market( T-bill, corporate bond, govt securities)

  • Hybrid Schemes - combination of Equity and debt funds.

  • Solution Oriented Schemes - children plan, retirement plan etc.

  • Other Schemes- Gold ETF, Fund of Fund , capital protection scheme etc.

Equity Market

SEBI categorized equity markets in to three categories on the base of their market capitalization

  • Large cap: 1-100 companies in term of full market capitalization
  • Mid cap: 101-250 companies in term of full market capitalization
  • Small cap: 251 and above in term of full market capitalization.

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Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator of future returns. ARN-104974