A Mutual Fund pools money from numerous investors with a common investment objective. This money is invested by Mutual Fund companies, better known as AMC, into various capital market instruments such as shares, debentures and other securities, based on fund’s objective. For example, an equity fund would invest in stocks and equity-related instruments, a debt fund would invest in bonds, debentures, etc, while a hybrid fund will invest in both equity and debt instruments. Each investor is allocated units at the time of purchase based on fund’s Net Asset Value (NAV) on the purchase day. The income earned from these investments and/or the capital appreciation of these investments is shared by the unit holders in proposition to the number of units owned by them.
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The biggest advantage of mutual funds is diversification, which means investing money into different resources. Plus, this has professional managers managing the money and the convenience and even provides you with better returns over time.
There are different types of mutual funds and used based on their objective:
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