understanding Mutual Funds

Understanding Mutual Funds.

Let us Understand Mutual Funds

It’s so much proven that Mutual Funds are a great asset to any Economy and a graph explains people all over the world are investing a lot. Let’s observe the origin and some interesting facts now.

Mutual funds started in the year of 1774 in Netherlands. Adriaan van Ketwich, A Dutch (Netherlands) Merchant collected money from different investors to form an investment Trust-the world’s first mutual fund. Many individuals lost their life time savings after the collapse of British East India Company and the idea of pooling is so helpful and Attractive. A Mutual Fund is a portfolio of stocks and/or bonds.

A few observations:
  • Korea stands first with largest number of funds. Having over 11,000 listed funds.
  • Region-wise, Europe has largest number of funds.
  • America secures second position.

“Luxembourg, Brazil, France, Japan, Ireland, Canada, Chile, Spain, Germany etc are all having very good investments in Mutual Funds

Isn’t it?

If we observe the graph of the countries with best fund investment, all the countries listed are developed or developing countries. This will explain that the Economy is going good wherever mutual fund investment is adequate. Hence as a general understanding Mutual Funds are no way damaging any market but they are raising the Economy and development.Ofcourse the Fund Management plays an important role. It is simple, because whatever the stock Market is doing, the same is done by MutualFund.Only difference is individual risk is diminished and investors’ safety is considered through a rigorous study and vigorous statistics.

To Figure out

The number of mutual funds in America in 1940 is 68.And today more than 8000

The Worldwide Investment is more than 28 trillion dollars.

Types of Mutual Funds

It’s Wonderful!

One of the best ways of investing is in Mutual Fund. You have a wide range of products that suit all ages and categories of investors. Experts work to raise and protect your money. We will make you familiar with the structure and objectives of Mutual Fund.By structure we have

Open-End Mutual Fund

•​ Open end mutual fund is a fund which has no time limit. Any point of time you can enter or exit the fund. This is advantageous when you don’t want to fix your money and reserve a right of quitting any time you want

•​ Open-end mutual fund shares are bought and sold on demand at their net asset value, or  NAV, which is based on the value of the fund’s underlying securities and is generally calculated at the close of every trading day.

•​ Investors buy shares directly from a fund

Closed-End Mutual Fund

•​  Closed-ended fund is something which means that once the NFO (new fund offer) closes, the scheme cannot accept any further investment

•​ A closed-end fund is organized as a publicly traded investment company by the Securities and Exchange Commission (SEC). A closed-end fund is a pooled investment fund with a manager overseeing the portfolio; it raises a fixed amount of capital through an initial public offering (IPO)

Interval Fund

•​ This is basically a Closed Ended Fund but which acts as Open Ended at some intervals

•​ That is, the fund periodically offers to buy back a stated portion of its shares from shareholders

•​ Again this is an option and the decision of retaining or selling shares remains with the shareholders or investors

Examples of Closed end Mutual fund will be Capital Protection and Fixed Maturity Plan

Open End Mutual fund is an interesting fund and the figure below illustrates the categories


                   Open End


Debt Funds

Money Market or Liquid

Equity Funds







Flexible Bond



Long Term Bond

TaxSaver or ELSS

Short Term Bond

Mid Cap

Ultra Short term Bond

Small Cap

Diversified or Multi Cap

How do you identify by objective

•​ Investments made in fixed income securities like Treasury Bills, Government Securities, Corporate Bonds, Money Market instruments and other debt securities of different time horizons are Debt/Income Funds. Generally, debt securities have a fixed maturity date & pay a fixed rate of interest

•​ Equity funds make money for investors by investing in the equity stock market. Equity funds may be classified into further types of mutual funds, large cap funds, mid-cap funds, small-cap funds and sector/thematic Funds. There are further types called multi-cap funds and balanced funds too, however these are just variants

•​ A money market or liquid fund (also called a money market mutual fund) is a mutual fund that invests in short-term debt securities such as Treasury bills and commercial paper. Money market funds are widely (though not necessarily accurately) regarded as being as safe as bank deposits yet providing a higher yield

•​ Balanced funds are Funds investing 65% – 80% in equity securities and the remaining in debt securities

•​ A hybrid fund is a category of mutual fund that is characterized by portfolio that is made up of a mix of stocks and bonds, which can vary proportionally over time or remain fixed

•​ An MIP is a mutual fund scheme which invests a small part of the funds (15-25 per cent) in equities. It offers regular income in the form of periodic (monthly, quarterly, half-yearly) dividend payouts. Due to the presence of equity, MIP returns can be volatile

•​ Fixed Maturity Plan FMP is closed-ended debt mutual fund .Such a fund invests only in instruments whose duration is similar to its own term. So the term is aligned to the fund’s underlying assets. So there will be no fluctuation in rate of interest.

•​ The main aim of a Capital-protection fund is to protect the principal by investing a part of it in fixed-income instruments such as bonds, T-bills and certificates of deposits (CDs). The rest of the investment is made in equities. Redemption is not allowed before maturity

Small investments may turn out to be huge amount of money like

Many small streams make one big river

  • Achieve your financial goals
  • Plan for future and invest accordingly
  • Save tax
  • Choose among multiple options
  • Invest more whenever you want to
  • Get continuous updates

How does We Know

It is easy to make a decision when we have sufficient knowledge and data. The general question is how to get sufficient data and input, so that we can understand the trend and traverse investment.

Websites provide significantly more data about a given mutual fund than a fund table does. All of the major mutual fund companies provide healthy websites with all the fund information.

Wealth management people are another good option to discuss on any type of investment. Mutual funds are designed separately for different categories of people. So you can let the financial advisor know you life style and goals and he can suggest the right fund for you.

Corporate filings give all the information about financial health, future prospects and past performance. With this information one can judge whether certain stocks, bonds or mutual funds are smart investment.

Oh, that’s good to know

While trying to understand the performance of a fund, simply considering the fund performance may not be helpful. View it as a relative issue, which means how the particular fund is performing against its peer group as well as against its benchmark index. As long as the fund is doing better relatively it is doing well. Follow the different criteria before results .This theory of relativity helps to identify a fund with a metrix.If other funds that invest with similar performance and similar mandate had similar performance, this data point tells us that the fund is in line with its peers. If the fund bested its peers and its benchmark, its results would be quite impressive. Also you need to judge over time.

The other factors you have to keep in mind with mutual funds would be tax consequences, over-diversification, asset class, investing strategy, broker fee. Once you focus on these Mutual funds should be a right option for you.

Start Investing and enjoy a secured life

Investment is made easy making the life easy. You are saving for all those countless cherish-able moments in life.

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