A mutual fund is a collection of investments, such as stocks, bonds and other funds issued by a Mutual Fund House and managed by a professional money manager. The investment objective of the mutual fund determines what types of securities it buys. A mutual fund can focus on specific types of investments.
For example, a fund may invest mainly in government bonds, stocks from large companies, or stocks from certain countries. Or, it may invest in a variety of investments.
There are options to invest in multiple currencies across any geography.
When you buy a mutual fund, you’re pooling your money along with other investors. You put money into a mutual fund by buying units or shares of the fund. As more people invest, the fund issues new units or shares.
The investments in a mutual fund are managed by a portfolio manager. They manage the fund on a day-to-day basis, deciding when to buy and sell investments according to the investment objectives of the fund.
4 things to know
Risk – The level of risk and return depends on what the fund invests in. Mutual funds are not guaranteed or insured. You can lose money investing in mutual funds.
Past performance – How a fund has performed in the past can’t tell you how it will perform in the future. But past performance can help you determine how volatile or risky the fund’s returns may be.
Price to buy and sell – You buy mutual funds at the fund’s net asset value (NAV) plus any sales fees. Mutual funds are redeemable – you can sell your mutual funds at the current NAV less any fees and charges for redemption.
Fees – All mutual funds have fees and expenses name expense ratio and the net return the client gets is after this expense in the funds
Net asset value (NAV)
When you purchase or redeem securities of a mutual fund, you pay or receive what is known as the net asset value (NAV) of the security at the time of purchase, switch or redemption. Most mutual funds report their NAV daily in the business section of many newspapers, or on the fund manager’s website. NAV represents the mutual fund’s assets less its liabilities. NAV will fluctuate with changes in the market value of the mutual fund’s particular investments.
2 ways to make money on a mutual fund
Capital gains – If you sell your mutual fund for more than you paid for it, you will have a capital gain. If you sell your mutual fund for less than you paid for it, you will have a capital loss.
Dividends/Distributions – Depending on the type of fund you buy, you may also receive distributions of dividends, interest, capital gains or other income the fund earns on its investments.
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