What Is A Mutual Fund?
“”mutual fund”” means a trust established to raise funds by selling units to the general public or a segment of the general public under one and more scheme for investing in security, money market instrument, gold or gold-related instruments, real estate assets, and other assets and instruments as the Board may specify from time to time.
In simple term, a mutual fund is common pool of money into which investors invest their money. This total is then invested in accordance with the fund’s investment goal.
money market instruments, Stocks, bonds, gold, real estate, and other similar assets could be used to invest the funds. These funds are managed by money managers and fund managers who, by investing in accordance with the investment aim, attempt to increase the value of the fund for investors.
A debt fund, for example, will spend in fixed income instrument or assets such as bonds, govt securities, debentures, and so on. An equity fund, on the other hand, will invest in equity-related instruments such as convertible debentures, transferable preference shares, options with the right to purchase equity shares, equity derivatives, and any other instrument that the Board may specify from time to time.
Mutual Funds Are Divided Into Several Groups.
- Equity funds – these are funds that only invest in equities and other equity-related products.
- Debt funds are funds that only invest in fixed-income securities.
- Short-term money market instrument are the focus of money market funds.
- Hybrid funds – fund that invest in both equities and debt to achieve a balanced portfolio.
What Is The Structure Of A Mutual Fund?
A mutual fund is organized as a trust with a sponsor, trustees, an Asset Management Company (AMC), and a custodian. A sponsor, similar to a company’s promoter, establishes the trust. The mutual fund’s trustees manage the assets for the benefit of the unit holders. The securities of the fund’s various schemes are held in custody by the custodian, who is licensed with the Securities & Exchange Board of India (SEBI). The trustees are in charge of the AMC and have broad supervision and direction authority. They keep track of performance and ensure that SEBI regulations are followed.
Professional money managers with experience investing in equities, debt, or both are employed by the AMC, who invest and manage the funds raised from investors.
The AMC may have a number of mutual fund schemes, each with its own set of investment objectives. Based on the mandate or aim, the investor can choose whatever plan he / she wants to invest in.
The SEBI (Mutual Funds) Regulation, 1996 govern all AMCs, which are governed by a Directors. The regulator, SEBI, has established clear mutual fund regulations, requiring all AMC mutual fund schemes to explicitly state the fund’s objectives in the prospectus, which an investor must read before investing in a mutual fund.
What Are The Advantages Of Mutual Fund Investing?
One of the most significant benefits of participating inside a mutual fund is that every investor (even with a little commitment) has access to professional financial management and experience. Furthermore, building a varied portfolio of assets with a limited quantity of money would be quite difficult. When investing in mutual fund, each investor shares in the scheme’s return proportionally.
The fund distributes a proportional percentage of the gain (or loss) to each unit. Each investor receives a portfolio report that details all of their investments as well as the mutual fund’s returns.