Mutual Funds – What are mutual funds?

Mutual fund is a kind of fund where many investors invest their money in shares, bonds, cash etc. The concept of mutual fund is to reduce the investment risk. If you invest in one company, your investment risk will be high because at any moment the value of share of that company may come down and you have to bear huge loss. If you invest in mutual fund, your investment risk will be reduced, because it is a pool of money and invested in several companies so that if the share value of one company goes down then the share value of other company will meet the loss. Mutual fund is managed by fund manager who are responsible for profit and loss. The profit and loss if any incurred is distributed among all investors. In this way investors do not have to bear huge loss.

How do asset management companies raise the money?

The asset management companies find out the profitable avenues where investors can invest their money and gain their profit. Based on those profitable opportunities they launch NFO (new fund offer) which can meet investors’ requirement who have same interest.

A prospectus is released by AMC where you can find every detail of the fund, avenues and about the company where the investors can invest their money. After complete study of the prospectus if the investors believe that it is profitable for him, they invest in the fund.

Where do AMC invest the fund?

The asset management companies invest the fund in the several companies, in the share of the company. These funds are called ‘equity mutual funds’.

Similarly, they invest fund in the government securities or corporate debt. These funds are called ‘debt funds’. The debt fund never gives high return but here your fund is secured. You do not have to bear high risk.