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.
Classification of mutual fund schemes
Variety is the spice of life. At the same time, you don’t look for variety just for the sake of it. A certain variety is needed simply because the situation requires it. So, when you eat food, you need to maintain balance. Food serves some basic needs of the body – they offer vital nutrients: you need energy, you need endurance, you need strength, you need good eyesight – you get them from vital nutrients – the fats, carbohydrates, proteins, vitamins, etc. that food provides. At the same time, no single food provides everything and therefore you need variety of food products in your daily meals.
Similarly, there are different mutual fund schemes for different purposes, to meet the different needs of different investors.
Let’s take a look at the basic investment requirements. An investor primarily needs a combination of four things: (1) capital security, (2) regular income, (3) liquidity, (4) growth of invested capital.
There are mutual fund schemes available to meet these needs.