Mutual Funds

A mutual fund is a pool of investor’s money invested according to pre-specified invested objectives. Profits or losses in a mutual fund belong to the investors, in proportion to their share in the pool of money. The risk and return of the fund also depends on its investment objectives.

Advantages of mutual funds:

  1. Portfolio diversification: It is a benefit derived from investment in securities spread across various companies, industries, issuers and maturities. The portfolio will not be affected by the performance of one or few of the securities.
  2. Low transaction cost: Since the fund invests large sums of money, the costs of research, broking, demat and custodial services come down. Small amounts invested in a fund get the benefits of the large pool.
  3. Professional management: Mutual funds/investor’s funds are managed by experts/professionals.
  4. Reduction in risk: As the funds are not invested in a single stock and also managed by professionals, it reduces the risk and offers benefits at a low cost.
  5. Suit the particular needs: Investors can choose their investment according to their needs and preferences.
  6. Higher flexibility: It gives higher flexibility of when to investment, how to receive the returns, how long to stay invested and when to redeem the units.
  7. Tax advantages: Mutual fund investments offer significant tax advantages to investors as it is not considered as a investment and as capital gains and not as interest income.


Apart from the above mentioned advantages mutual funds are convenient, flexible and easy to conduct.


Mutual fund types:

  1. Open ended funds: An open-ended fund does not have a fixed maturity date. It can be purchased or redeemed at anytime with the fund at current market price.
  2. Closed end funds: Close end funds operate for a specific period. On the specified maturity date, all units are redeemed and the scheme comes to a close.
  3. Interval funds: Interval funds are a variant of closed ended funds. They are primarily closed-end with a locking period but become open-ended at specific intervals.

Mutual product categories:

  1. 1.       Debt funds investing in short and long term debt instruments.
  2. 2.       Equity funds investing in equity securities (shares).
  3. 3.       Hybrid funds investing in a combination of equity and debt.

Offer document:

                The offer document is the primary source of information for an investor seeking to invest in a mutual fund scheme i.e., it gives a clarity to the investor about fundamental objective of an investment of a particular scheme/fund. It provides background information about mutual fund and describes the details of the scheme being offered.

The investors are expected to read and understand the information available in the offer document before making the investment decision in the mutual fund. An investor has no legal recourse for not reading the information provided by the fund in the offer document.

Offer document is a sort of blue print for a specific scheme being offered as it contains all the required information about a particular scheme/fund that an investor must know.

The offer document must give information about the risk factors associated with the mutual fund. It loses its relevance, if it is not updated for the use of investors.

It provides complete operational details of the scheme that is being launched. Such information is necessary for completing the process of investing in the scheme. The operational details include:

  • The period of offer: Opening and Closing dates of the offer.
  • Product features: Plans, options and loads.
  • Pricing basis for subsequent transactions.
  • The process of applying: Availability of forms, points of acceptance, payment details.
  • Minimum initial and subsequent investment amount.
  • Details regarding categories of investors eligible to invest.
  • Date of commencing on-going sales.
  • Maturity date of the scheme if it is a closed-end scheme.
  • Any policy or procedure regarding purchase, redemption or other transactions.

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