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A Mutual Fund is the ideal investment vehicle for today’s complex & modern financial scenario. Markets for equity shares bonds and other income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual will also find it difficult to keep track of ownership of their assets, investments, brokerage dues & bank transactions etc.
A Mutual Fund is the answer to all these situations. It appoints professionally qualified and experienced staffs that manage each of these functions on a full time bases. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect the Mutual Fund vehicle exploits economies of scale in all three areas – research, investment, transaction processing. While the concept individual coming together to invest the money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact mutual funds gained popularity only after the Second World War. Globally there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today Mutual Funds collectively manage almost as much as or more money as compared to banks.
Mutual fund is an investment company that pools money from shareholders and invests in a variety of securities such as stocks, bonds and short term money market instruments or other securities. In a Mutual Fund, the fund manager trades the funds underlying securities, realizing capital gains or loss and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value (NAV), is calculated daily based on the total value of the fund dividend by the number of shares purchased by investors.
Mutual Fund may invest in many kinds of securities. The most common securities purchased are cash or money market instruments such as senior loans and derivatives like forwards, futures, options and swaps.
Most Mutual Fund investment portfolio are continually monitored by one or more employees within the sponsoring investment advisor or management company typically called portfolio manager and their assistant, who invest the fund’s assets in accordance with its investment objective and trade securities in relation to any net inflows or outflows of investors capital as well as the ongoing performance of investment appropriate for the fund. Mutual Fund is advised by investment advisor under an advisory contract which generally is subject to renewal annually.
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