What is a Mutual Fund?

A mutual fund can be said to be a financial trust in which many investors pool their funds keeping in mind a predetermined objective of investment. After collecting the funds they are invested in various instruments of the capital market like securities, shares and debentures.

This pool of money is managed and monitored by an expert who by studying the market conditions invests the money into certain specific securities. The gains thus earned by the investments are shared between the different security holders in proportion to the units of shares held by them.

Currently investing in Mutual funds is considered to be one of the most beneficial forms of investments available in the Indian investment industry in comparison to the other investments instruments. Mutual funds are extremely cost efficient and also carry a low level of risk.

List of mutual fund companies in India

Below is a list of some of the best mutual fund companies in India :

• ABN AMRO Mutual Fund
• HDFC Mutual Fund
• HSBC Mutual Fund
• Alliance Capital Mutual Fund
• Chola Mutual Fund
• Birla Sun Life Mutual Fund
• Bank of Baroda Mutual Fund (BOB Mutual Fund)
• Tata Mutual Fund
• Escorts Mutual Fund
• Kotak Mahindra Mutual Fund
• Franklin Templeton India Mutual Fund
• Morgan Stanley Mutual Fund India
• Canbank Mutual Fund
• Prudential ICICI Mutual Fund
• Sahara Mutual Fund
• State Bank of India Mutual Fund
• Unit Trust of India Mutual Fund
• Reliance Mutual Fund
• ING Vysya Mutual Fund
• Standard Chartered Mutual Fund
• Benchmark Mutual Fund
• LIC Mutual Fund
• GIC Mutual Fund

Types of Mutual Fund Schemes

Open — Ended Schemes

The best thing about an open ended scheme is liquidity. Open-end fund subscriptions are generally available throughout the year. They do not have a fixed date of maturity. Investors can buy and sell share units as and when they feel.

Close — Ended Schemes

Close ended schemes come with a pre-determined maturity period. Investors can directly invest the open ended scheme during the initial issue. There are two types of exit options in this kind of schemes depending on the type of the scheme.

Interval Schemes

Interval Schemes are a combination of both open-ended and close-ended schemes. In case of interval schemes you can trade the units directly on the stock exchange or redeem them at the NAV related rates.

Advantages and Disadvantages of investing in mutual funds

For investments in mutual fund. one must keep in mind about the Pros and cons of investments in mutual fund.

Advantages of Investing Mutual Funds

Professional Management — The biggest advantage of investing in mutual funds is that they are managed by qualified and professional expertise. Since most people are busy these days they do not have the time to monitor and manage their investment portfolios. However incase of mutual funds investors are relaxed that their funds are in safe hands.

Diversification — Investing in mutual funds does not require the investor to buy individual bonds and stocks he purchases units of different mutual funds thereby spreading the amount of risk. In this way his risk gets minimized to a great extent. By investing in different assets the investor is sure that if he incurs losses in any particular fund then he might gain from another investment.

Liquidity — By investing in mutual funds you can liquidate your investment as and when you like.

Simplicity — Investing in mutual funds is very easy and simple when compared to the other instruments available in the investment market. Investing in mutual funds also does not require large amounts of money as you can start with a minimum Rs.50 per month.

Disadvantages of Investing Mutual Funds

Professional Management — Some of the mutual fund managers are not experienced enough and so they do not explore all the available opportunities in the market.

Costs — When an investor purchases a unit of a mutual fund then he is charged an entry load which is actually an extra cost that the investor is paying. Also when the investor is exiting from the mutual fund he is again charged an extra cost as exit cost.

Dilution — Dilution is the direct result of diversification. Since investors have their money spread across different assets the high returns earned do not make much of a difference.

Taxes — Tax is something that is most often ignored by the mutual fund manager. When the mutual fund manager sells a particular security it triggers the tax of the individual thereby almost nullifying the tax saving in mutual funds investment.

Last Updated on 06/26/2011