Mutual Fund

A Mutual Fund (MF) is a body corporate registered with SEBI (Securities Exchange Board of India) that pools money from individuals/corporate investors and invests the same in a array of different financial instruments or securities such as equity shares, Government securities, Bonds, debentures etc.

MF can thus be considered as financial intermediaries in the investment business that collect funds from the public and invest on behalf of the investors. MFs issue units to the investors. The appreciation of the portfolio or securities in which the mutual fund has invested the money leads to an appreciation in the value of the units held by investors.

The investment objectives outlined by a MF in its prospectus are compulsory on the MF scheme. The investment objectives specify the class of securities a MF can invest in. MF invest in various asset classes like equity, bonds, debentures, commercial paper and government securities. The schemes offered by MF vary from fund to fund. Some are pure equity schemes, others are a mix of equity and bonds. Investors are also given the option of getting dividends, which are declared periodically by the MF, or to participate only in the capital appreciation of the scheme.

Benefits of Investing in MFs are
• Small investments
• Professional Fund Management
• Spreading Risk
• Transparency
• Choice
• Regulations

Mutual Fund Plans:
• Growth Plan and Dividend Plan: A growth plan is a plan under a scheme in which the returns from investments are plowed back for investment. The investor thus only realizes capital appreciation on the amount invested. Under the dividend plan, income is distributed on periodic basis. This plan is ideal to those investors, who are in need of regular income.
• Dividend Reinvestment Plan: Dividend plans carry an additional option for reinvestment of income distribution. This is referred to as the dividend reinvestment plan. Under this plan, dividends declared by a fund are reinvested in the scheme on behalf of the investor, thus increasing the number of units held by the investors.