Mutual Funds
Mutual Fund Scheme Recommendation and Choice
A mutual fund is a collective and pass through (profits or losses are passed through to the investors) investment vehicle that pools money from different investors and invest it in a diversified portfolio of securities like stocks, bonds and commodities in line with the stated objectives of the mutual fund scheme. In other words, through investment in a mutual fund, an investor can get access to equities, bonds, money market instruments and/or other securities that may otherwise be unavailable to them
The money collected in a mutual fund scheme is managed by professional fund managers. The fund manager makes investment decisions in line with the scheme’s stated investment objective.
Key Benefits of Mutual Funds
Diversification
It reduce risk by spreading the investment across various asset classes, and within single asset class into different securities thus preventing concentration in a single security and / or asset class.
Professional Management
Professional fund managers handle the investments at a reasonable cost, saving the investor time, money and effort.
Affordability
Mutual Fund allow investments with relatively small sums of money, making them accessible to very small investors also.
Liquidity
At times, investors in financial markets are stuck with a security for which they can’t find a buyer, such investments, whose value the investor cannot easily realize in the market, are technically called illiquid investments and may result in losses for the investor. Investors in a mutual fund scheme can recover the market value of their investments, from the mutual fund itself. Depending on the structure of the mutual fund scheme, this would be possible, either at any time, or during specific intervals, or only on the closure of the scheme.
Strong Regulatory Framework
The regulator, Securities and Exchange Board of India (SEBI), has laid down strict checks and balances in the structure of mutual funds and their activities. Mutual fund investors benefit from this stringent rules and regulations.
Classification of Mutual Funds in India
Classification by the Structure of the Fund
- Open ended funds
- Close ended funds
- Interval funds
Categorization of Mutual Fund Schemes
(As Per SEBI Guidelines)
- Equity Schemes
- Debt Schemes
- Hybrid Schemes
- Solution Oriented Schemes (for Retirement & Children)
- Other Schemes (Index Fund & ETFs and Fund of Funds)
Important Disclaimer: Investments in Mutual Funds are subject to market risks. Read all scheme-related documents carefully before investing. Proficient Wealth is a Mutual Fund Distributor registered with Association of Mutual Funds in India (AMFI) and does not provide investment advisory services.
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