Guidebook on Mutual Funds

Guidebook on Mutual Funds

Chapter 1: Mutual Funds Basics

This chapter is a basic introduction to the salient features of mutual funds, and
the basics regarding their workings and their selection from the point of view of
investors.

1. What is a mutual fund?

A mutual fund is an investment program that is professionally managed and diversified in its
investments.
The process involves professionals using the funds of retail investors to invest in a carefully selected set
of investment products to build a diversified portfolio. The professionals who are responsible for
managing a mutual fund are known as fund managers.
A fund manager is an expert who is well versed with how the stock market works. He/She aims to build a
portfolio that performs a certain market index.

Suppose you wanted to buy a pizza, but you have money
that’s worth half the cost of the pizza. The only solution here
would be to find another person, who is interested in buying
the other half of the pizza with you.
Why? Because -
1. The pizza shop will not sell you only half a pizza; and
2. Doing so will get you the exact amount of pizza you
wanted, at the exact amount of money you wanted to
spend.

2. What are the advantages of mutual funds?

Simple Concept

The concept and management of a mutual
fund investment is very simple. You choose
the fund and invest in it, and the rest of the
decisions will be handled by the fund
managers.

Diversifying our Portfolios 

A mutual fund is a set of different types of
investment products. When we put our
money in a mutual fund, we automatically
diversify our portfolio

Variety of Products

The mutual fund industry offers a huge amount
of schemes. They are built to cater to the
different types of investors present in the market
on the basis of time duration of investments, and
the risk appetite of investors.

Professional Fund Management

The biggest advantage of putting our money in a
mutual fund comes from the professional
management that our investment receives.

Guidebook on Mutual Funds