Mutual Fund

           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 day 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. 

Mutual Funds are considered better due to the following reasons:

• Your investments will be managed by professional finance managers who are in a better position to assess the risk profile of the investments;
• 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. 

Mutual Funds can be classified into various categories:

Type of Investments:

• Equity Funds / Schemes
• Debt Funds / Schemes (also called Income Funds)
• Diversified Funds / Schemes (Also called Balanced Funds)
• Gilt Funds / Scheme
• Money Market Funds / Schemes
• Sector Specific Funds
• Index Funds

Time of closure of the Schemes:

• Open Ended Schemes
• Close Ended Schemes

Tax Incentive Schemes:

•  Tax Saving Fund
•  Not Tax Saving Funds/ Other Funds

Time of Payout:

• Dividend Paying Scheme
• Reinvestment Schemes.

Tips for Mutual Funds:

     1. NEVER invest in a mutual fund that charges a load. These funds are for suckers. Whoever is trying to convince you to buy them likely gets a kickback from the fund, which is why they are trying to pressure you into investing in the fund.

     2. NEVER take stock advice from someone trying to convince you buy a mutual fund with a load. This person clearly does not have your interests in mind. He is most likely just trying to line his pockets with kickbacks.

     3. Understand the fund's asset allocation. Don't invest in a "mixed" fund (one that invests in both stocks and bonds) if you only want to invest in stocks. If you want international exposure, allocate some money towards international mutual funds.

     4. Keep fees to a minimum. Obviously, you should avoid a load and 12 b-1 fees, but you also don't want to be paying management fees either. A fund with an expense ratio under 1% is particularly lovely in today's environment.

    5. Consider an index fund. Did I say that already? Well, I'll say it again because these are the two most important points you should take away from this. 
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