Mutual fund - Unleash the power of collectivity

Are you having some discretionary income at your disposal? Want to invest but are scared? Heard about mutual fund? Here are a few things to know that will help you in making your decision easier and a well-informed one.

In simple terms a mutual fund is a kind of collective financial investment, managed professionally to buy money market instruments like bonds and stocks.



Mutual funds have the authority to invest in many different types of securities, as mentioned in their offering document called the "prospectus". This document on its own is all that you need to know about the fund. The objective of the fund’s investment is the defining statement of the fund which will determine the type of investment the mutual fund is going to make. An investment adviser provides professional advice to a mutual funds or even an equity fund. A portfolio manager is the "karta" of such funds who decides the investment patterns which are in sync with the objective of the investment. It is the perquisite of the fund to invest in stocks of any particular sector of the market, such as petro-chemical, financial or medical services. These types of industry-specific investment are termed as sector or specialty funds.



A few more terms one needs to be familiar with;

Growth fund - it invests in stocks of those companies which are categorized in high-growth list. The payment of dividends in this fund is non-regular in nature.



Value funds – these are the stocks which are undervalued at the market place. Traditionally such stocks have always beaten the market expectations.



Income funds – the most conservative investment of them all, for the weak hearted. The focus of this type of mutual funds is the regular receipt of dividends.



Balanced fund - this type of mutual fund use a mixture of strategies. Normally includes some part of the investment in bonds. The lone purpose of doing this is to soften the risk and stay more middle-of-the-road and at the same time target for marginal growth as well.



Enough about investments, mutual funds are not just about investment alone but a load of other things as well. It is a great tax-saver. Ask any service person with his income in the taxable slab and he will be all praises about the same. Many economic policies of the government also favor this type of fund and the ministry of finance regularly doles out concessions for this type of fund.



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