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.
When can I withdraw my investment?
An investment in an open end scheme can be redeemed at any time. Unless it is an investment in an Equity Linked Savings Scheme (ELSS), where there is a lock-in of 3 years from the date of the investment, there are no restrictions on the repayment of investments.
Investors should keep in mind any applicable exit load on their investment. Output loads are charges deducted at the time of redemption, only if applicable. AMCs usually impose an exit load to discourage short-term or speculative investors from entering a scheme.
Closed schemes do not offer this, as all units are automatically refunded on the expiration date. However, units of closed schemes are listed on a recognized exchange, and investors can sell their shares to others only through the exchange.
Mutual funds are one of the most liquid avenues of investment in India and are an ideal asset class for any financial plan.
