A mutual fund brings together a group of people and invests their money in stocks, bonds and/or other securities.
Let’s consider Equity Mutual Funds. If you want to invest Rs 10,000 per month in the equities, there is very limited number of stocks that you can buy. You also wouldn’t be able to build a diversified portfolio of various company shares.
A Mutual Fund Company (AMC) aligns its objectives and pools money from investors to invest in various Mutual Fund schemes. For example, ICICI Prudential, an Asset Management Company, provides ICICI Prudential Focused Bluechip Equity Fund, which is one of their Mutual Fund schemes in which individuals can invest.
This mutual fund invests in primarily large cap blue chip companies like HDFC Bank, Infosys, Reliance Industries, etc. You can see the full list here.
Mutual Funds are one of the most viable investment options for the common man. It provides an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
Investing in a mutual fund provides certain benefits:
- Small Investments: Money is spread in small bits across varied companies. This way you can create a diversified portfolio with small investments.
- Professionally Managed: The surplus collected by a Mutual Fund Company is managed by professionals with the expertise, resources and experience to analyse the market and the economy which helps them identify investment opportunities.
- Spreading Risk: A mutual fund usually spreads the money in companies across a wide spectrum of industries. This not only diversifies the risk, but also helps take advantage of the position it holds.
- Transparency & Interactivity: Mutual funds clearly present their investment strategy to their investors and regularly provide them with information on the value of their investments. Also, a complete portfolio disclosure of the investments made by various schemes along with the proportion invested in each asset type is provided. You will not find this level of disclosure by insurance companies.
- Liquidity: Open ended funds can be bought and sold at their market value as they have their units listed at the stock exchange.
- Choice: A wide variety of schemes allow investors to pick up those which suit their risk / return profile.
- Regulations: All the mutual funds are registered with SEBI. They function within the provisions of strict regulations created to protect the interests of the investor.
Mutual funds provide you a platform to start with a small investment and that investment is managed by experts who guide as well as execute the transactions for you.
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