01 April 2010
what is mutual fund in share market? what specefic meaning of mutual fund? about all companies have its mutual fund with equity share ? please explin it with comparision of equity share. and why has it less risk than equity?
A mutual fund is made up of money that is pooled together by a large number of investors who give their money to a fund manager to invest in a large portfolio of stocks and / or bonds. Mutual fund is a kind of trust that manages the pool of money collected from various investors and it is managed by a team of professional fund managers (usually called an Asset Management Company) for a small fee. The investments by the Mutual Funds are made in equities, bonds, debentures, call money etc., depending on the terms of each scheme floated by the Fund. The current value of such investments is now a days is calculated almost on daily basis and the same is reflected in the Net Asset Value (NAV) declared by the funds from time to time. This NAV keeps on changing with the changes in the equity and bond market. Therefore, the investments in Mutual Funds is not risk free, but a good managed Fund can give you regular and higher returns than when you can get from fixed deposits of a bank etc.
Like all other investments in equities and debts, the investments in Mutual funds also carry risk. However, investments through Mutual Funds is considered better due to the following reasons :-
1) Your investments will be managed by professional finance managers who are in a better position to assess the risk profile of the investments; 2)Your small investment cannot be spread into equity shares of various good companies due to high price of such shares. Mutual Funds are in a much better position to effectively spread your investments across various sectors and among several products available in the market.This is called risk diversification and can effectively shield the steep slide in the value of your investments.
01 April 2010
Very well explained by Mr. Sanjay Gupta. Just to add up...Equity shares are issued by the companies where as mutual funds may be promoted by company or may be start by some professionals by registering with the relevant authorities. Also, it not necessary that every co. issuing equity shares will promote mutual fund. On the other hand, Mutual Fund Invests in the shares of different companies through collection of funds from the investors.
02 April 2010
good morning Sir, many many thanks sir for providing excellent answer of my question. it is incredible answer for me. i hope you will give and increase my knowledge in share market. again thanks all of you very much , Sir
CAclubindia
