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.
What are loads?
On a long-distance road trip, a toll is sometimes charged when entering the road or bridge, and sometimes when exiting. In many cases, the toll bridge company is only allowed to charge the toll for a certain number of years to recover construction costs. After that period is over, the company is not allowed to charge any tolls to passengers.
Mutual fund investments may also be subject to some loads, but they are different from the toll example you just read. Until 2009, there was a tax collected when entering a mutual fund, but it no longer exists. Some schemes apply a charge to exit from the scheme, under certain conditions, which is called “output load”.
In most cases, even when an output load is loaded, it applies to the output within a certain period. If you stay invested longer than this period, the noexit load would be applicable. In other words, more often than not, the output load is intended to discourage an early exit from a pattern. Even on an “exit load,” SEBI, the mutual fund regulator, has set a limit on the maximum exit load that can be charged.