What is Mutual Fund and how does it work?

 A mutual fund is a company that collects money from different people, which it invests in stocks, bonds and other financial assets. All these combined holdings (stocks, bonds and other assets) of that company are called portfolio of that company. Each mutual fund managed is by an asset manager.

There is a very good and easy way to earn money from mutual funds. It is not necessary that you have thousands of rupees to invest in this. Rather, you only Rs 500 per month can also invest in it at the rate of .

From today's post, we will know what is the difference between them and after all what is this mutual fund and how can we safely invest in it? 

What is Mutual Fund ?

A mutual fund is a fund (collection) in which the money of a number of investors is mutually held together. This group of funds is managed to earn the highest possible profit.

Simply put, Mutual Funds are a fund made up of many people's money. In which the money invested is used to invest in different places and it is tried to give maximum profit to the investor from his amount.\

Who is a Professional Fund Manager?

Fund the task of managing is done by a professional person which professional fund managers ( Professional Fund Manager is called).

fund manager investing the fund The job of a professional is to look after the mutual fund and make more profit by money in the right place. If put in simple words, its job is to convert the money invested by the people into profits.

What is the role of SEBI in Mutual Funds?

Mutual Funds SEBI are registered under (Securities and Exchange Board of India) which regulates the market in India. The work of keeping investors' money safe in the market SEBI is done by . It is ensured by SEBI that any company is not cheating with the people.

Mutual Funds have been present in India for a very long time, but even today people do not know much about it. In the early times, people had the belief that Mutual Funds are only for the rich class.

But this is not the case at all and in today's time this perception seems to be changing. The trend of people has increased towards Mutual Funds. In today's time, Mutual Funds are not only for the rich class.

Rather, any person can invest in Mutual Funds at the rate of only 500 ₹ every month. The minimum amount to invest in Mutual Funds is Rs 500.

If you need basic information about mutual funds , read this.

History of Mutual Funds

The Reserve Bank of (RBI) mutual fund industry in India with the formation of the Unit Trust of India (UTI) on India at the initiative of the India and the Government of India 1963 began in .

Its main objective was to attract small investors and make them aware of the topics related to investment and market.

UTI was formed in 1963 under an Act of Parliament. It was established by the Reserve Bank of India. And initially it worked under RBI.

In 1978 , UTI was separated from RBI. Industrial Development Bank of India (IDBI) got regulatory and administrative control in place of RBI. And UTI started working under it.

The development of Mutual Funds in India can be divided into several stages. As the first phase was from 1964 to 1987, in which UTI had 6700Cr a fund of ₹ .

After this the second phase starts from 1987, in which public sector the entry of funds started. In this time, many banks got a chance to make Mutual Funds.

SBI created the first NONUTI mutual fund. The second phase ended in 1993, but by the end of the second phase, the AUM ie Assets under management increased from to ₹ 6700Cr ₹ 47004CR . In this phase, there was a lot of enthusiasm among the investors in mutual funds.

The third phase 1993 started from 2003 and lasted till . In this phase private sector funds were approved. In this phase, investors got more options of Mutual Funds. This phase ended in 2003.

The fourth phase started from 2003 which is going on till now. In 2003 , UTI was divided into two separate phases. First SUUTI and second UTI mutual fund which used to work according to the rules of SEBI MF. Read the effect of the economic recession of 2009 on the whole world.

Investors in India also suffered a lot. Due to this, people's confidence in mutual funds decreased a bit. But slowly this industry started coming back on track. In 2016 , the AUM was ₹15.63 trillion. Which was the highest ever.

The number of investors is almost above 5 CR and lakhs of new investors are being added every month. This phase has proved to be golden for mutual funds.

Types of Mutual Funds

There are many types of Mutual Funds. We can divide them into 2 categories. The first is of on the basis of the structure of on the basis of the the type mutual funds the type mutual funds and the second is asset.

A) Types of Mutual Funds on the basis of Structure

1.  Open ended mutual fund

Open Ended Funds = In this scheme, investors are allowed to sell or buy funds at any point of time. There is no fixed date or period to buy or sell funds in this.

These funds provide liquidity to the investors, hence they are very much liked by the investors.

2.  Close ended Mutual Funds

This type of plan has a stipulated maturity period and investors can buy funds only during the fund tenure. And such funds share market are also included in the . After this they are also used for trading.

3.  Interval Funds

This type of Mutual Funds is made up of both open ended funds and close ended funds. In this, the facilities of both the funds are primed.

It allows investors to trade funds at pre-determined intervals. And trading of funds can be done on that fixed period.

It was talked about the type of Mutual Funds on the basis of the structure, now we will talk about how many types of Mutual Funds are taken on the basis of asset.

B) Types of Mutual Funds by Asset

1.  Debt funds

Debt Funds = In this type of funds, the risk to the investor is very less. Investors invest in debentures, government bonds and other fixed income which are safe investments.

Debt funds provide fixed returns. If you want a stable income then this fund is for you. If the investor's earnings from the funds are more than 10,000 then the investor will have to pay tax.

2.  Liquid Mutual Funds

Liquid Funds = This is also a safe option to invest. Liquid funds invest in short term debt instruments. Therefore, if you want to invest for a short time, then liquid funds can be your choice.

3.  Equity funds

Equity Funds = If you want to get long term profits then Equity funds are for you. These funds invest in the stock market. These types of funds also involve risk, but the returns from them are higher as compared to others.

4.  Money Market Funds

Such funds term provide reasonable returns for investors in the short . It is invested in safe places.

5.  Balanced Mutual Funds

Equity fund and debt fund get a mixed benefit in this type of fund scheme. Funds accumulated in this type of mutual fund are invested in both equity and debt positions.

These types of funds give investors stability in income on the one hand and on the other hand they also give impetus to income growth.

Apart from these funds, there are many types of funds, but these are the main and most used funds.

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