Mutual Fund – Characteristics, Advantages and Disadvantages

There are various sectors where people like to invest their hard earned money , namely , share market , Mutual funds , NSC , infrastructure bonds , insurance , gold , silver , insurance , bank deposits etc. If you want to classify these investments options according to safety then all forms of investments are safer than investing in share market. In this article, I am going to explain Mutual Fund.

What is a Mutual Fund and it’s Characteristics

A mutual fund is a pool of money collected from investors and is invested by professional people according to stated investment objective. Funds are invested in a portfolio of marketable securities. Mutual fund is owned by investor in the form of units. Value of the portfolio own by you changes with the change in the market value of the investments.

Advantage of Mutual Fund

  • Your money is invested in different companies across different sector to minimize the risk and to give better return , known as Portfolio Diversification.
  • Funds are managed by professional people who have enough capital market experience.
  • Liquidity, flexibility, low risk and convenient.
  • Limited tax benefits

Disadvantage of Mutual Fund

  • No Control over costs
  • No custom-made portfolios
  • No guarantee of return especially in equity funds
  • Risk of loss of capital subject to capital market rise and fall.

Mutual Fund Products: Mutual fund products are classified according to risk, tenor and investment objective.

  • Money Market & Liquid Funds
  • Debt Funds
  • Balanced Funds
  • Equity Funds
  • Sectoral Funds etc.

Money Market & Liquid Funds are least risky and for short term liquidity needs

Debt Funds suit income objectives.

Balanced funds are combination of debt and equity in comparable proportions.

Equity funds require a long investment horizon and suit growth objective.

Sectoral funds are most risky.