Mutual Fund Distribution

What is a Mutual Fund?

It is a trust that collects money from a number of investors who share a common investment objective. Then, it invests the money in equities, bonds, money market instruments and/or other securities.

Each investor owns units, which represent a portion of the holdings of the fund. The income/gains generated from this collective investment is distributed proportionately amongst the investors after deducting certain expenses, by calculating a scheme’s Net Asset Value or NAV.

Simply put, a Mutual Fund is one of the most viable investment options for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

How Does a Mutual Fund Work?

A mutual fund pools money from multiple investors to purchase a diversified portfolio of securities as per Scheme Offer Documents. Let's break down how a mutual fund works.

The pooling of funds is done when investors contribute money to the mutual fund scheme in the form of units. Each unit represents a proportionate ownership in the fund, and its underlying assets. The objective of the fund would follow a specific investment strategy, and determine the kinds of securities the fund will invest in and it is subject to market risks.

Mutual fund schemes usually invest in a broad range of securities to diversify risks. The fund manager would actively manage the portfolio, make decisions on buying, holding or selling the underlying securities according to their research and analysis. Passive mutual funds mirror the performance of a market index to maximise returns.

Features and Benefits of Mutual Funds

The characteristics and benefits of mutual funds are:

It is managed professionally

Mutual funds are managed by expert professionals who make informed investment decisions based on research.

Mutual funds are liquid in nature

Investors can buy or sell mutual fund units on any business day at the fund’s applicable net asset value (NAV).

Various Forms of Funds

There are different kinds of mutual funds to match different investment objectives and risk appetites, such as, Equity Schemes, Debt Schemes, Hybrid Schemes, Solution Oriented Schemes and other Schemes.

Automatic Investment

Mutual funds offer the option to automatically invest at regular intervals through the Systematic Investment Planning mode. This gives investors the benefit of rupee cost averaging and the power of compounding in the long term.

Mutual funds offer diversification

By pooling resources, mutual funds provide investors with exposure to a diversified portfolio of securities. This lowers the impact of a single investments under performance.

It offers convenience

Mutual funds simplify the investment process of buying, selling, and management of the portfolio, which saves investors time and effort.

Mutual funds are affordable investments

Mutual funds enable small investors to access a diverse portfolio, even with limited capital.

Tax benefits

Some mutual funds are structured to provide tax benefits, which can benefit investors. For eg. ELSS Schemes, which provide tax benefits, subject to a lock in period..

Regulated environment

Mutual funds are subject to regulatory oversight from SEBI to protect investors and make sure that the investor’s interests are secured.

SCORES

SCORES is an online grievance redressal facilitation platform provided by SEBI. Complainants can lodge grievances pertaining to Mutual Funds.

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