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.
How much of my investment can I withdraw?
Most mutual fund schemes are open-ended schemes, which allow an investor to repay the full amount invested without any time restrictions.
Only in a
few cases do the schemes impose a restriction on reimbursement, in extraordinary circumstances, as decided by the Board of Trustees.
All Equity Linked Savings Schemes (ELSS), which offer tax benefits under the SEC 80C, are required to “lock-in” investments for a period of 3 years. However, any dividend declared by these schemes during this period is available as an unrestricted payment. No other category of schemes can impose such a lock-in. Some may impose an exit charge for premature repayments, to prevent short-term investments from entering a scheme. AMCs may specify the minimum amounts that may be submitted. All this information is contained in documents related to the scheme which is important for an investor to read before investing.
Closed schemes have a fixed mandate and the AMC does not fund or allow any reimbursement until the date of termination/termination. However, all closed-end funds have their shares listed on the stock exchange, and an investor seeking liquidity must sell shares to another buyer at a rate determined by the market.