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Investor FAQ's

Mutual Fund is a mechanism for collecting funds from investors by issuing units to them and then investing funds in securities on behalf of them. Investments in securities are spread across various sectors and industries, thereby minimizing the risk of losing money. The profits or losses are shared by all the investors in proportion to their investment. The investors of mutual funds are called unit holders. Mutual fund units are issued to the investors in proportion to the quantum of money invested by them. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.

Mutual funds are packed with a bundle of benefits. A few are mentioned below:

  • Managed by experts: Mutual Funds are managed by qualified and experienced professionals. Investors may have reasonable capability but to assess a financial instrument, a professional analytical approach is required. Access to research, information, time and methodology also helps them to make sound investment decisions.
  • Reduced risk with diversification: Mutual Funds invest in a number of stocks reducing the risk. It provides small investors with an opportunity to invest in a larger basket of securities.
  • Time-efficient option: Investors save their time and effort of tracking investments, collecting income and more from various issuers.
  • Small investments: It helps investors to invest in small amounts as and when they have surplus funds to invest.
  • Transparent dealings: Mutual Funds are well regulated & governed by SEBI (Mutual Funds) Regulations, 1996 thereby ensuring transparency of investments.
  • Easy liquidation: Funds like open-ended funds can be redeemed (liquidated) on any business day (when the stock markets and/or banks are open), so investor have easy access to their money.

Mutual funds are pooled investments. A common pool of money invested by many investors is managed by fund investment managers. The fund managers have in-depth knowledge about how the market works and they use their skills and judgment in investing the total amount, which is called corpus. The corpus is invested in securities like shares, debentures and money market instruments. Profit generated through these investments is then distributed amongst investors in proportion to their investments made.