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What is a Mutual Fund?

 

A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities like stocks, bonds and other assets.

Funds are managed by professional Fund managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors.

And mutual funds charge annual fees known as expense ratios for the service provided.

Types of mutual fund:

There are different types of funds, based on assets invested there are 3 types.

  1. Equity Fund
  2. Debt Fund
  3. Hybrid Fund

Equity Fund: 

  • It is a fund that invests in stocks/shares of different companies.
  • Here funds are invested across companies from different sectors or with varying market capitalizations.
  • Equity funds are known to generate higher returns than any funds, but there is an amount of risk associated with these funds since their performance depends on various market conditions.

Debt Fund:

  • It is a fund that invests in bonds, or other debt securities.
  • Here funds are invested in securities which generate fixed income like treasury bills, corporate bonds, commercial papers, government securities etc.
  • These instruments have a pre-decided maturity date and interest rate that the buyer can earn on maturity hence it’s also known as fixed income securities. The returns are usually not affected by fluctuations in the market therefore, debt securities are considered to be low-risk investment options.

Hybrid Fund:

  • It is a fund that invest in more than one asset class i.e. Combination of equity and debt investments.
  • Here funds are allocated in equity and debt instruments in varying proportions.

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