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Posted on 2/7/2019 6:30:00 PM

Key Takeaways
- Understanding Mutual Funds
Advantages of investing in Mutual Funds
Types of Mutual Funds

Looking for a quick read to understand the basics of mutual funds but don’t know where to start? We have you covered. These are some of the most common questions that people ask before investing in mutual funds.

What is a Mutual Fund Scheme?
In simple terms, a mutual fund is a pool of money brought in by various investors with a common investment objective. Each investor is allocated units in proportion to the investor’s contribution to the pool. The money in a mutual fund is held and managed by a duly regulated trust or AMC (Asset Management Company).

Where do Mutual Funds invest my money?
Mutual funds can invest your money in equities, bonds, money market instruments and/or other securities or a combination of these depending on their type and investment objectives.

What are the advantages of investing my money through mutual funds?
There are multiple advantages of investing your money through mutual funds.

  1. Your money is managed by professional managers who have the expertise to analyze market information and research and monitor the fund’s performance on a continuous basis.
  2. Mutual funds allow you to diversify your portfolio across various asset classes like equities, debt and gold and/or industries and companies.
  3. They are convenient investment options given their affordability and liquidity. In general*, you can purchase units with small amounts of money and/or you can redeem your holdings at will.
  4. The mutual fund industry is well regulated.

 *Subject to restrictions that a few schemes may have.

What are the types of mutual funds?
Mutual funds can be classified into various types depending on the scheme structure and/or the asset class or asset classes they invest in.
Based on the scheme structure, mutual funds may be:

  1. Open-ended Schemes – These schemes are always open for investors to subscribe or redeem units.
  2. Closed-ended Schemes – These schemes are open for investors to subscribe for a specified period and cannot be redeemed before the maturity of the scheme.

Based on the asset class in which they invest in, mutual funds may be broadly classified as:

  1. Equity Schemes
  2. Debt Schemes
  3. Hybrid Schemes – These schemes invest in a combination of Equity and Debt.
  4. Solution oriented
  5. Others - These include Exchange Traded Funds (ETFs) and Fund of Funds (FOFs)

Mutual Funds are a good option to consider investing in. If you have not started investing in Mutual Funds, now is the time to start. Remember to seek the advice of a Financial Advisor.


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