What are Mutual Funds?

A mutual fund is a collective investment vehicle that collects & pools money from a number of investors and invests the same in equities, bonds, government securities, money market instruments.
The money collected in mutual fund scheme is invested by professional fund managers in stocks and bonds etc. in line with a scheme’s investment objective. The income / gains generated from this collective investment scheme are distributed proportionately amongst the investors, after deducting applicable expenses and levies, by calculating a scheme’s “Net Asset Value” or NAV. In return, mutual fund charges a small fee.
In short, mutual fund is a collective pool of money contributed by several investors and managed by a professional Fund Manager.
Mutual Funds in India are established in the form of a Trust under Indian Trust Act, 1882, in accordance with SEBI (Mutual Funds) Regulations, 1996.
The fees and expenses charged by the mutual funds to manage a scheme are regulated and are subject to the limits specified by SEBI.

Mutual funds are ideal for investors who –

1. Lack the knowledge or skill / experience of investing in stock markets directly.
2. Have some knowledge or skill / experience, but do not have the inclination or time to research the stock market.
3. Good option for beginners who want to start with very small amounts.

Advantages of investing in mutual funds

1. Professional Management
2. Risk Diversification
3. Affordability & Convenience
4. Liquidity
5. Low Cost
6. Well Regulated
7. Tax Benefits

SEBI Categorization of mutual fund schemes

As per SEBI guidelines on Categorization and Rationalization of schemes issued in October 2017, mutual fund schemes are classified as –

1. Equity Schemes
2. Debt Schemes
3. Hybrid Schemes
4. Solution Oriented Schemes – For Retirement and Children
5. Other Schemes – Index Funds & ETFs and Fund of Funds