July 31, 2012

Concept of Mutual Funds

Concept of Mutual Funds

A mutual fund is a trust that pools the savings of number of investors who share a common financial goal. The money thus collected is than invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and capital appreciations realized are shade by its unit holders in proportion to the number of units owned by them. Thus a mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Definition
Mutual funds are associations or trusts of public members who wish to make investment in the financial instruments or assets of the business sector or corporate sector for the mutual benefit of its members. The funds collects the money of these members from their saving and invests them in a diversified portfolio of financial assets with a view to reduce risks and to maximize their income and capital appreciation for distribution to its members on a priority basis.

They enjoy collectively the benefits of expertise in investment by specialists in the trusts, economics of scale, which no signal individual by himself could enjoy. Mutual funds is thus a concept of mutual help of subscribe for portfolio investment and management of these investment by expert in the field. These funds are set up under the Indian trust act. UTI is governed by its own act.

A mutual fund pools the money of people with similar investment goal. The money in turn is invested in various securities depending on objectives of the mutual funds scheme, and the profits or loss is shames are usually open end (perpetually open for investment and redemption) or closed end (with a fixed tern) a mutual fund sachems issues units that are normally priced @10 Rs. During the initial offer, thus the number of units own as against the total number of unit issues by the mutual fund scheme determines your share in the profits or loss of a scheme. In case of open-end schemes. Units can be purchased from or sold back to the fund at a Net asset Value (NAV) based price on all working days. NAV is the actual value of a unit of the fund on a given day.

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