A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
Are there any penalties if I choose to withdraw earlier?
Each open-time scheme offers liquidity with almost complete freedom, that is, no restrictions on the time or amount of reimbursement. However, some schemes may specify an output load.
For example, a scheme specifies an output load of 1%, if redeemed within 1 year. This means that, if an investor invested on April 1, 2016, any repayment made by March 31, 2017 would attract a 1% penalty on the NAV. If an investor redeems on February 1, 2017 with the NAV at ₹200, then ₹2 would be deducted and only ₹198 per unit would be returned to the investor.
All information about output loads is usually mentioned in the schema-related documents. For example, a fund factsheet or key information memorandum would contain such information.