Mutual fund is a trust that pools and invests investors money to achieve a common goal. Income earned through these investments is divided in the ratio of number of units held by investors. Investors are beneficial owners of mutual fund in the ratio of their holding.
Common goal doesn't always means maximum returns. This may be safety from market risks with normal returns.
Mutual Fund Working
Advantages of Mutual funds to investors
- Low transaction costs
- Portfolio management by experts
- Diversification of investment
- Risk reduction
- Reach to foreign markets
Disadvantages of Mutual funds to investors
- Difficult to choose between 800 schemes
- High management and distribution costs
- Can't reap benefits of intraday movements.
Mutual fund NAV is calculated everyday at 3 pm in case of open ended schemes and on Wednesday in case of close ended schemes. So in case of market crash, there is no way out for mutual fund investors