| WHAT IS MUTUAL FUND? |
A mutual fund is not an alternative
investment option to stocks and bonds, rather it pools
the money of several investors and invests this in stocks,
bonds, money market instruments and other types of securities.
Buying a mutual fund is like buying a small slice of a
big pizza. The owner of a mutual fund unit gets a proportional
share of the fund’s gains, losses, income and expenses.
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| Each mutual fund has a specific stated
objective |
The fund’s objective is laid out
in the fund's prospectus, which is the legal document
that contains information about the fund, its history,
its officers and its performance.
Some popular objectives of a mutual fund are -
|
| Fund Objective |
What the fund will invest
in |
| Equity (Growth) |
Only in stocks |
| Debt (Income) |
Only in fixed-income securities |
| Money Market (including Gilt) |
In short-term money market instruments (including
government securities) |
| Balanced |
Partly in stocks and partly in fixed-income securities,
in order to maintain a 'balance' in returns and
risk |
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| Managed by an Asset Management Company
(AMC) |
The company that puts together a mutual
fund is called an AMC. An AMC may have several mutual
fund schemes with similar or varied investment objectives.
The AMC hires a professional money manager, who buys
and sells securities in line with the fund's stated
objective. |
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| All AMCs Regulated by SEBI, Funds
governed by Board of Directors |
| The Securities and Exchange Board of
India (SEBI) mutual fund regulations require that the
fund’s objectives are clearly spelt out in the prospectus.
In addition, every mutual fund has a board of directors
that is supposed to represent the shareholders' interests,
rather than the AMC’s. |
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