What is a Mutual Fund?

Mutual Fund


A mutual fund is a pool of money collected from investors to invest to attain a common goal. Investments can be made in a variety of assets, including stocks, bonds, and money market instruments, in order to generate returns while attaining the predetermined goal. It is managed by a professional asset management company (AMC), and each investor participates according to the number of units held. Mutual funds are a sort of investment vehicle that can invest in a portfolio of stocks, bonds, and other securities, or a mix of the two.

Mutual funds can provide investors with inexpensive access to professionally managed, diversified portfolios. These are classified according to the types of securities they invest in, their investment objectives, and the types of returns they generate. As compensation for managing the fund on behalf of investors, they levy annual fees (called expense ratios) and other costs.

How Do Mutual Funds Work?

Investors prefer mutual funds because they lack the time to learn and research the fundamentals of individual stocks. Investing in mutual funds enables investors to achieve decent returns year after year with minimal effort. Actively managed mutual funds invest in a basket of stocks that replicates an index, whereas passively managed mutual funds invest in a basket of equities that mirrors an index. For instance, the Nifty 50 or the Sensex. Index funds and exchange-traded funds (ETFs) are the most convenient investment alternative for individuals who lack the time to research and track individual stocks. In addition, their expenses and fees are cheaper than those of other funds. Nevertheless, fund managers oversee both active and passive mutual funds. Actively managed mutual funds aim to beat the benchmark index by outperforming the market, whilst passively managed funds aim to merely replicate the performance of the index.

Types Of Mutual Fund Schemes

Mutual funds can be classified in a variety of ways, including their structure, the securities they own, and their investment strategy, among others. The Securities and Exchange Board of India (SEBI) has categorized mutual funds based on where they invest; we have attempted to capture some of these classifications here. This is not an exhaustively categorized list of mutual funds, but rather a selection of popular ones to get you started.

  1. Open-ended mutual funds are eternal in nature, allowing investors to make and redeem investments at any time. They are liquid and do not have a predetermined investment period.
  2. Closed-ended schemes have a predetermined expiration date. You can only invest during the new fund’s offering period, and redemption is only permitted at maturity. You cannot purchase units of a closed-end mutual fund at your convenience.

Further Classification as per asset class:

  1. Equity Mutual Funds: Invest at least 65 per cent of their assets in equities of publicly traded companies. Stocks are ideal for long-term investments (> 5 years) due to their short-term volatility. They have the potential for higher returns but also carry a high degree of risk.
  2. Debt Mutual Funds: invest largely in fixed-income products, such as Government securities, corporate bonds, and other debt instruments. They are not affected by the volatility of the stock market and can thus offer more steady returns than equities mutual funds. On the basis of the duration of the securities they own, many types of debt mutual funds can be distinguished.
  3. Hybrid Mutual Funds: Depending on the fund’s investment goal, hybrid mutual funds invest in various proportions of both equities and fixed-income securities. Therefore, hybrid funds provide exposure to many asset types. Based on their allocation to equity and debt, hybrid funds are classed.

Advantages Of Investing In Mutual Funds:

1. Liquidity Access:

There are no restrictions on the investor’s ability to redeem fund units. It provides a quick liquidity option. Furthermore, these units are redeemable at NAV on the day of redemption.

2. Past Performance:

Accessibility to historical performance since the net asset value is established at the end of each trading day, investors may watch the performance of these funds and make informed decisions.

3. Systematic Schemes:

Through systematic arrangements, these funds are accessible for investing and withdrawal purposes. Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP), and Systematic Transfer Plan (STP) are available to investors (STP). These can help to consistently invest a fixed amount in the scheme.

4. Diversified Portfolio:

Open-ended funds are invested in a diverse array of assets that belong to a wide range of firms and industries. This portfolio diversity helps to reduce the risk of the investment.

5. Low investment:

Mutual funds do not demand a substantial initial contribution. The investor can initiate a systematic investment plan with a modest initial commitment of Rs 100.

How to Invest in Mutual Funds Through Kuvera?

You can invest in direct mutual funds through Kuvera and avoid paying commissions. It is the best platform to invest in mutual funds as it is 100% free and helps you find the right investment for your life goals.

To invest in mutual funds via Kuvera, follow the given steps:

Step 1: Sign up at Kuvera or Download the Kuvera Mutual Fund Investment App. 

Step 2: Complete the KYC requirements and link your bank account.

Step 3: Click on MF in the Explore section to choose mutual funds for investment. 

List Of Best Large Cap Mutual funds (as per 5-year return)

Schemes 5-Year Return (%) AUM (crore)
Canara Robeco Bluechip Equity Fund 15.26 8,053.04
Axis Bluechip Fund 14.65 36,805.34
Edelweiss Large Cap Fund 13.59 361.19
Kotak Bluechip Fund 13.50 4,994.48
UTI Mastershare Fund 13.32 10,550.02

Source: AMFI (data as on 5.09.2022)

Kuvera is the best place to find top mutual funds such as DSP mutual fund, Axis mutual fund etc.


  • Can we incur losses by investing in mutual funds?

Yes, theoretically. As per historical data, if you maintain your investment for a sufficient length of time in a blue chip fund, that probability is almost negligible.


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