Mutual Fund
What is a Mutual Fund?
A financial tool called a mutual fund collects money from several investors. After that, the combined funds are invested in assets such as listed company stocks, corporate bonds, government bonds, and money market instruments.
As a shareholder, you are not the actual owner of the company equities that mutual funds buy. However, you equally split any gains or losses with the other pool investors. This is how a mutual fund and the word “mutual” are related.
You benefit from the fund manager’s experience and the Securities Exchange and Board of India’s (SEBI) regulatory safety. The expert fund manager makes sure investors receive the highest possible return.
Types of Mutual Funds Based on Asset Class
The underlying asset and the declared objective both affect the type of mutual fund. The categories of mutual funds are as follows:
1. Equity Mutual Funds
The majority of the combined funds are invested via equity mutual funds in equities of various businesses. As a result, equity mutual funds have a larger market risk by nature. Earnings, revenue projections, management changes, and corporate and economic strategy all have an impact on price changes and returns. Equity fund returns are subject to significant swings. Therefore, you should invest if you have a good grasp of the risks related to equities as an asset class.
2. Debt Mutual Funds
An important percentage of the pooled corpus is invested by a debt mutual fund in debt securities such government securities, corporate bonds, debentures, and money market instruments. By promising investors, a consistent stream of interest revenue, bond issuers effectively “borrow” from investors. Debt funds are therefore less hazardous than equity funds. The debt fund manager makes sure the fund only invests in assets with the highest ratings. The highest credit rating reflects the issuer’s ability to fulfil principal and interest obligations on time.