What is a mutual fund?

A mutual fund is a professionally managed investment vehicle made up of money collected from investors in order to invest on their behalf. Mutual funds invest this money in securities like stocks, bonds, money market instruments, and generate returns for its investors. In simple words, a mutual fund collects money from several investors like you, and invests it in various investment options like shares, bonds, etc.

Investing into a mutual fund is like hiring a team of experts to handle your investments. These professionals look for the best opportunities, pick the right securities, keep a track of the economy, global markets and keep an eye on how everything is performing. They do all this based on the fund's goals, whether that's aiming for high growth, steady income, or tracking a market index.

The investors decide if a mutual fund is good for their investment basis an offer document which defines its objectives and outlines how it will be investing. e.g., a large cap fund will invest only in large cap shares. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. 

This fund is managed by experts. A fund manager from an asset management company, known as AMC, is responsible for your allocation of funds and decides where to invest the money. 

A mutual fund is an easy way for investors to invest in a diversified, professionally managed basket of securities at a relatively low cost. Mutual funds are a good investment vehicles especially for beginners and individuals who don't have expertise of the stock markets including professionals like doctors and engineers, entrepreneurs, salaried individuals and housewives.

Types of mutual funds

There are many types of mutual funds in India and they can largely be categorised by:

1. Asset class: equity funds, bond funds, gold funds, hybrid funds
2. Region: Domestic funds, global funds or country-specific funds (like US or a China fund)
3. Type: open-ended funds or closed-ended funds
4. Management style: Active funds or passive funds (index funds)
5. Focus: Sectoral funds, diversified funds or thematic funds
6. Sustainability: ESG funds, Shariah funds or socially responsible funds