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What is a Mutual Fund ?

What is a Mutual Fund, Why should you invest in a mutual fund, Benefits of mutual funds.
What is a Mutual Fund, Why should you invest in a mutual fund, Benefits of mutual funds.
What is a Mutual Fund ?
In these days people are very excited to invest in mutual funds even govt. is also promoting mutual funds through various media. So it is necessary to understand this properly. 

What is a Mutual Fund?

A mutual fund is a investment vehicle, through which a large number of investors pool in their money to invest in a range of financial securities like as bonds, stocks, money market, securities etc.
Mutual funds are run by "Asset Management Companies". There is a fund manager who manage the funds collected. 
Mutual funds help investors to take the benefits available in money market. 
The raised from the investors goes to the corporate, banks, government and other entities which helps the invest in projects and fund expenses.

Reasons To Invest In Mutual Fund:

  1. Diversification of fun is possible in Mutual Fund - A mutual fund spreads the money of investors across a diverse number of securites thus reducing risk in investment which for an individual investor is tough to practice. 
  2. Large No. Of Choices Are Available As Per Investors Need - In Indian bazar, variety of mutual funds are available. There are 43 Asset Management Companies(AMCs) are present in India which offers different types of schemes for different types of needy persons.
  3. Mutual funds are Safe in Comparison of investing in Shares directly- It is possible for investors to manage their investments according to their liquidity and taxation requirements. And not only this Investors can takeout money fully or partially any time from mutual funds depends upon the type of fund.
  4. Mutual funds are rgulated by SEBI and so are safe. Any one can invest without any fear of getting cheated.
  5. Tax Saving is Also possible. One can save upto Rs/ 1.5 lacs per annum under section 80c of income-tax ACT. To save tax invest in ELSS(Equity Linked Savings Scheme) mutual fund schemes. In this minimum lock-in period is 3 years.
  6. There is a facility of (Systematic investment plan)SIP and Systematic Transfer Plan(STP).
  7. Long term capital gain in MF is ZERO. If you invest in MF schemes for 1 year or more then you don't have to pay any taxes on returns made by you.

What Are Units In Mutual Funds?

The total money that is collected from the investors by a mutual fund is the capital of the scheme and this capital is broken down into units. The investor is issued units of the scheme. Just like shares represent the extent of equity ownership in a company, units represent your extent of ownership in a mutual fund.

What is NAV?

NAV means Net Asset Value which is the value per unit of the mutual fund scheme. It is the main performance indicator of a scheme. If the scheme is profitable, the NAV increases and if the scheme is in loss the NAV goes down. 
NAV represents the market value of the securities in the scheme's portfolio. MF units are bought and sold on the basis of NAV of the scheme. NAV is updated and published 
daily, in at least two newspapers having nationwide circulation. You can view your scheme's latest NAV anytime from AMFI website and various other websites.

Note: Mutual Fund investments are subject to market risks.

Read More Related Articles On Mutual Fund:
Indian Mutual Funds Basics
What is SIP?
What is ELSS fund?
Why One Should Invest in Diversified Equity fund?

What is a Mutual Fund, Why should you invest in a mutual fund, Benefits of mutual funds.


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