Mutual Funds

mutual fund is literally what it says, a fund that is mutually held by many. A fund manager identifies the instruments that he assesses to be profitable and uses the investor money to buy these instruments based on a plan. There are Pros and Cons to buying mutual funds: 

Pro's

Con's

  • Buy experience for a fraction of a cost
  • Exposure to multiple industries 
  • Relatively managed risk 
  • Complete dependence on a 3rd party 
  • No research can still land you in bad investments 
  • Too many options make it difficult 

Mutual Funds are primarily of 2 types:

Actively Managed

These funds are actively managed by a fund manager, I.e., the fund manager actively decides what percentage of money goes to which king of equity. Active funds can be further divided into: 

Open-Ended Funds: Open Ended funds do not have an end date and can be bought and sold any time basis the NAV. There are 4 types of open-ended funds namely Equity Linked, Balanced, Debt & Money Market Funds 

Close-Ended Funds: Closed Ended funds raise a fixed amount of capital and are then listed on the exchange for trading. There are 2 types of close-ended funds Capital Protection & Maturity.

Passively Managed

Passively Managed: As the name suggests the composition of such funds follows the composition of something else. 

ETF’s or Exchange Traded Funds: These are passively managed in the sense that their composition follows the index it is following. E.g. an XYZ Nifty ETF will follow the composition on Nifty 50 stocks. ETF’s are listed and traded on exchange. 

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