All about mutual funds

Have you heard this term in the financial circles yet?

If you are someone who is in the financial or the banking sector or you have been on the investment and the asset building scene for a while now, you may have heard the term mutual funds being thrown into conversations. Have you ever wondered what the term means and why suddenly everyone seems to be talking about it?

What is mutual fund?

A mutual fund as the name itself suggests is a collection of investment from a large number of people which is accumulated with the sole purpose of reinvesting in other companies in the form of shares, stocks, etc.

The mutual fund company uses its own discretion to invest your money so received as investments in various companies that are called a portfolio.

There are many kinds of mutual funds of which two are most popular. They are

  1. Equity mutual funds and
  2. Debt mutual funds

Out of the two, equity mutual funds are the most preferred mode of investment across the financial sector. Let us see what this form of mutual funds is all about.

Where does the mutual fund agent invest the money:

In equity mutual funds, the money so pooled from numerous investors is pooled and reinvested in shares of companies. The way the company performs at the stock exchange and also the occasional high and the low of the price of the share will be the determinant of how well the investor’s portfolio in the equity mutual fund does.

Now, a lot of people think that the growth in the equity mutual fund is sluggish:

This may largely be the case that the growth may be slow and it may take a while before it earns a good amount of profit but at least the corpus is safe. Imagine if the same amount was directly invested in the stock market or as shares in a company in the personal capacity, it is likely that the risk associated with the investment would be even more to the extent of even losing the entire investment in one shot also.

The net asset value or the NAV

The price that a mutual fund customer pays to acquire one unit of the mutual fund plan is called the Net Asset Value of the fund. This NAV is a fair reflection of the fluctuations in the market because the prices fluctuate with the fluctuation in the price of the stock of the company.

Qualified Fund Manager:

Every customer is assigned a fund manager who is a person qualified in managing funds who shall professionally manage the fund. There are two types of investment in the equity mutual fund:

  • one time investment where the customer may invest the entire surplus in one go; and
  • SIPS or Small Investment Plan which works more like a saving account but with the security benefits of a mutual fund.