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Mutual Fund

Mutual Fund

A Mutual Fund is an investment scheme that collects money from people and invests those funds in various assets. The money collected from various investors is usually invested in financial securities like shares and money-market instruments like certificate of deposit and bonds. Equity, debt and money-market instruments are broad classifications of asset classes. These investments may be made for the short term, medium term or long term. The kind of asset invested in also determines the risk factor of the funds.

Advantages of Mutual Funds

  • When you buy a mutual fund, you pay a management fee as part of your expense ratio, which is used to hire a professional portfolio manager who buys and sells stocks, bonds, etc. This is a relatively small price to pay for getting professional help in the management of an investment portfolio.
  • As dividends and other interest income sources are declared for the fund, it can be used to purchase additional shares in the mutual fund, therefore helping your investment grow.
  • Reduced portfolio risk is achieved through the use of diversification, as most mutual funds will invest in anywhere from 50 to 200 different securities depending on the focus. Numerous stock index mutual funds own 1,000 or more individual stock positions.

Key Takeaways

  • Mutual funds are the most popular investment choice in the India.
  • Advantages for investors include advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing.
  • Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.

Pros Of Mutual Fund

  • Liquidity.
  • Diversification.
  • Minimal investment requirements.
  • Professional management.
  • Variety of offerings.

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