What is Mutual Funds | Mutual Fund Definition

What is a Mutual Fund?

What is Mutual Funds

A mutual fund is a type of a financial instrument that is composed of funds raised by many investors, such as investing in stocks, bonds, money market instruments, and other assets. 

Mutual funds are run by professional money managers, who fund assets Distributes and seeks to generate capital gains or returns for fund investors. 

The mutual fund's portfolio is structured and matched to the investment objectives stated in its prospectus. Mutual Funds provide small or individual investors with access to a professionally managed portfolio of equities, bonds, and other securities. 

Mutual Fund Meaning 

So each Shareholder participates proportionately in the profit or loss of the fund. 

Mutual funds invest in a large number of securities, and performance is generally recognized as the change in the total market cap of a funds derived from the total performance of the underlying investments.

Mutual Funds Types

According to SEBI, mutual funds can be broadly classified into 3 categories - equity funds, debt funds, and hybrid funds

Equity Fund: 

An equity fund is a mutual fund that invests at least 65% of its assets in equity and equity-related instruments. It can invest in 0% -35% debt or money market securities. 

Equity funds are able to provide relatively high returns because they invest primarily in the stock market and the shares of companies that are responsible for the changes in the economy. 

For that reason, equity funds come with a relatively high-risk factor. According to SEBI Classification, there are 11 types of equity funds. 

The most popular of them is the ELSS - Equity-Linked Savings Scheme. ELSS invests 80% of its total assets in equity. 

The ELSS is the only equity fund that has raised Rs. 1.5 lakh under Section 80C of the Income Tax Act. ELSS comes with a lock-in period of 3 years.

Debt Fund: 

A debt fund is a mutual fund that invests most of its assets in debt and money market securities. Under the Income Tax Act, a mutual fund that invests less than 65% of its total assets in equity is called a debt fund. 

Debt funds Investors are mainly preferred because they have lower levels of risk. Because they are less risky, debt funds in India offer higher returns than returns from fixed return investments, less than the returns offered by equity funds in the long run. 

According to SEBI Classification, there are 16 types of loan funds. Most popular in the case of AUM (Assets Under Management) Debt funds are liquid funds, because they are used by corporations to freeze their surplus funds in the short term. 

A liquid fund invests primarily in debt and money market securities with 91 days of maturities. Due to the short maturity period, liquid funds have the least risk in all debt funds. 

Liquid funds generally offer higher returns than savings accounts and equal deposits.

Hybrid Fund: 

As the name suggests, a hybrid fund is a mutual fund that invests in two or more asset classes, including equity, debt, money market instruments, gold, and foreign securities. 

Hybrid funds usually only invest in two assets. The classes are Equity and Debt. A mix of equity and debt makes a hybrid fund less like a debt fund Operates at a risk level that enables it to deliver returns generated by equity funds. 

According to the SEBI classification, there are 7 types of hybrid funds. The most popular project in this category is the Dynamic Asset Allocation Fund. 

The Dynamic Asset Allocation Fund has the option of investing in any amount of equity or debt between 0% -100% of its assets. 

Typically this type of fund has equity If aiming to sell and make a profit under the equity market conditions, equity market valuations will reverse when attractive. 

A dynamic asset allocation fund reduces credit exposure in the low-value market and increases its debt in the bull run.

Return on Mutual Fund Investment

The advantages of investing in mutual funds are as follows

Higher returns: 

Mutual funds offer returns of 15% or more from 7% (low-risk liquid funds) in the case of high equity funds over a 5-year period. 

These inflation rates provided by mutual funds are a major reason for many to opt for market-related investments over fixed income instruments such as fixed deposits. 

Flexible Investment Rate: Mutual fund investments can be started with minimal money. There is no limit to the maximum amount you can invest. 

But in the case of an ELSS investment, you are only paying Rs. 1.5 lakh 80c limit in the financial year.

Professional management of funds: 

With mutual funds, investors can benefit from the professional management of their funds by an expert fund manager. Fund houses charge a nominal fee for the administration and management of a mutual fund scheme called the expense ratio. 

The mutual fund's expense ratio is usually between 0.5% and 1.5% and should not exceed the 2.5% limit suggested by SEBI. 

Fund houses always refer to the proceeds from a mutual fund plan after deducting the applicable expense ratio.

Systematic Investment Options: 

Systematic Investment Plan (SIP) is a method of investing in mutual funds, which allows investors to invest a fixed amount in a mutual fund scheme at predetermined intervals (daily, weekly, monthly, bi-annual or annual). 

Allows. SIP investments reduce the financial risk associated with total investments Does. 

This allows investors to increase/decrease their investments in line with their current financial position.


Mutual funds allow investors to use a broad and diversified investment portfolio that includes debt and money market instruments for various market capitalizations and investments amounting to Rs. 500. 

A diversified investment the portfolio allows the mutual fund to provide an unparalleled balance between risk and return.

Tax Benefits: 

The Equity-Linked Savings Scheme (ELSS) is a type of mutual fund that helps investors obtain tax benefits in addition to the aforementioned benefits. 

The ELSS comes with a lock-in period of 3 years and each ELSS investment is Rs. 1.5 lakh under Section 80C of the Income Tax Act. 

Other (non-ELSS) Even in the case of equity schemes, the capital gain from unit redemption is Rs. 1 lakh in the treasury.

How do mutual funds work?

What is Mutual Funds
While investing in a mutual fund is a great way to increase your wealth, it's still important to know how a mutual fund works. 

Asset Management Company (AMC) or Fund Houses Decide to Start Mutual Funds From the moment you start offering attractive returns, then try to understand the function of mutual funds:

The process begins when the fund house recognizes the potential to make potential money in the market, subject to major risks. 

The fund house weighs the newly identified opportunity against existing investment opportunities and analyzes how it adds more value to existing investors. 

A portfolio of various asset classes including equity, debt, and money market securities A fund manager is appointed by a fund manager. 

The asset allocation of the plan determines which mutual fund category falls under - equity funds, debt funds, or hybrid funds. 

The Fund Manager then collects all the details of the project's asset allocation, risk level, etc., and sends the draft to the market regulator SEBI for approval. 

Submit Upon approval by SEBI, the Fund will make the scheme available to the public for subscription through the New Fund Offer (NFO). 

NFO usually lasts 7-10 days. Depending on the membership period, mutual fund schemes can be classified as open-ended and closed-end plans. 

Mutual Funds Companies

NFO is an open-ended mutual fund scheme for investors Allows the fund to enter and exit at any time after expiration. 

However, the closed-end fund allows investors to enter into the scheme only during the NFO period and is not allowed to exit until the end of the period, usually 3-4 years from the closing date. 

Upon initial membership, project requirements, and market / financial The fund manager actively or passively manages the project, depending on the circumstances. 

Mutual fund investing provides its investors with earnings in the form of dividend payments and capital gains.

The 10 Most Popular Mutual Fund Houses In India

Name of the Mutual Fund house

      HDFC Mutual Fund

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Click here for comments
9 June 2020 at 11:19 ×

Good information for beginners

Congrats bro Unknown you got PERTAMAX...! hehehehe...

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