What is Mutual Fund? – Definition, Meaning & Advantage

A Mutual Fund is a trust that pools the savings of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them.

Advantage of Mutual Fund

The advantages of investing in a Mutual Fund are:

  • Funds are managed by Professionals
  • Diversified investment
  •  Gives a good return
  • Low Costs
  • Flexibility & Choice of schemes
  • More Liquid
  • Transparency
  • Tax benefits
  • Well regulated

 Regular & Direct Options of Mutual Fund

 Now Mutual Funds offer the regular and direct options for their schemes. The direct plan has a lower expense ratio compared with the regular plan, as distribution expenses are excluded and Due to this, it gives higher return to investors.

Investors can move their existing investments to the direct plans by submitting a switch request. Such switches, from one plan to another within a scheme, are allowed and treated as redemption from one plan and investment in the other. The switching of units from one plan to another may attract capital gains tax and exit loads.

 

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