To many people, Mutual Funds can seem complicated or intimidating. We are going to try and simplify it for you at its very basic level.
Essentially, the money pooled in by a large number of people (or investors) is what makes up a Mutual Fund. This fund is managed by a professional fund manager.
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 represents a portion of the holdings of the fund. The income/gains generated from this collective investment are distributed proportionately amongst the investors after deducting certain expenses, by calculating a schemes’ ‘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 diversified, professionally managed basket of securities at a relatively low cost.