what is mutual fund ?

Mutual funds
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Mutual funds are one of the most popular investment strategies for individual investors for making wealth in the stock market. A mutual fund is a company that collects money from many investors and invests in securities like stocks, bonds, and debts. In this article we cover mutual funds, how they work, types of mutual funds, Benefits of mutual funds and how to invest in mutual funds.

Table of Contents

  • Introduction to Mutual Funds
  • What is mutual fund in simple words
  • How Mutual Funds Work
  • Types of Mutual Funds
  • Advantages of mutual fund
  • Risks of Investing in Mutual Funds
  • How to Invest in Mutual Funds
  • Conclusion
  • FAQs


Mutual funds are investment options where they pool money from lots of investors and invest in other securities like stocks and bonds. In mutual funds professionals will manage your portfolio. They will decide which stock they need to buy or sell and generate returns. 

What is mutual fund in simple words

Mutual funds is an investment platform where they pool money from Number of investors to purchase Diversified portfolio of securities like stocks, bonds, and other securities. Mutual funds managed by professional or fund managers. 

How Mutual Funds works

When an investor invests his money in a mutual fund, His money will be collected with other investor money to create  a large amount of capital. And this capital will be used to purchase diversified securities. This is managed by a professional or fund manager.

The fund manager will decide where and which securities need to invest and receive good returns. Fund managers will use their expertise to research and analyse the market and find out good returns of securities.

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Types of mutual fund

There are many types of mutual fund available, and each has its own risk reward and own investment strategy. Here is most common types of mutual fund: 

Equity Fund

Equity funds are also called stocks or other equity securities. This one is designed for those investors who want to take higher risk in exchange for higher return. 

Debts Funds

Debt fund investment is mostly used for fixed income securities,like bonds and other debts securities. This one is designed for those investors who are looking for more conservative investment options. 

Balance funds

Balance funds investment is invested in both stocks and bonds for the goal of maintaining growth and income. This one is designed for those investors who want to make a good portfolio with low risk. 

Index funds

Index fund is designed for a particular stock market index. Like nifty 50, bank nifty. They are passive investments that depend on performance of that index. 

Exchange Traded Funds(ETFs)

ETFs are similar to index funds, here also they track performance of a particular index. But they trade like individual stocks in the stock market. 

Sector funds

Sector funds invest in a particular sector or industries like technology , healthcare etc. It is designed for those investors who are interested in investing in particular industries. 

Tax saving Funds

Tax saving funds are also known as ELSS ( equity linked saving schemes). These funds offer tax benefits under section 80c of the income tax act in india.They invest on equity for a lock in period of three years. 

Fund of Funds

Fund of funds means they invest in other mutual funds rather than individual securities. This one is designed for those who want a good portfolio investing multiple funds.

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Advantages of mutual fund

There are lots of benefits to investing in mutual funds


After investing in a mutual fund, investors have access to a diversified portfolio of securities. They will help you minimise risk and volatility in their portfolio. 

Professional management

Mutual funds are managed by professional or fund managers who have expertise and make decisions on which stock to buy or sell to make a good portfolio. 


Mutual funds have more liquidity than individual stocks or bonds. An investor can buy and sell at any time during the trading day. 


Mutual funds offer to their investors an affordable way with a small amount of capital to access the stock market, they can buy and sell securities and invest in the stock market.


Mutual funds disclose their holding and investment strategy to their investors. Before investing in a mutual fund you can see the investment strategy in a mutual fund. 


There are many types of mutual funds available in India, each having its own investment strategy and risk reward. They allow investors to meet their specific goal.

Risk of investing in Mutual Funds

When investing in a mutual fund it has its own investment strategy but it also has its own risk.

Market Risk

Mutual funds are subject to market risk. Which means the value of mutual funds can increase or decrease as per stock market performance. 

Credit Risk

Debt funds are subject to credit risk which means the value of a mutual fund can move based on changes in creditworthiness of the issuer of the bonds.

Liquidity Risk

Mutual funds are subject to liquidity risk, that means the fund may be not able to sell their securities because of liquidities. 

Interest Rate Risk

Debt funds are subject to interest rate risk , that means the value of funds can be changed based on changes in interest rate. 

How to invest in Mutual Funds?

Investing in a Mutual fund is a simple steps : 

Identity your Investment Goal

Before investing in a mutual fund you have to identify your investment goal, risk tolerance, and time period. 

Research Mutual funds

Research different mutual funds, what are charges etc to find a mutual fund which is good for you. 

Choose a Funds

After researching a mutual fund you need to choose a fund, review previous records of those funds, what are the returns of those funds etc.

Invest in the fund

After choosing funds you just need to invest in that fund , you just select your amount and complete the payment process.

Monitor your investment

Monitor the performance of your investment in that fund. And adjusted your investment as per need. 


Mutual funds are great options to invest in the stock market which offer various benefits to their investors, they also carry risks like market risk, credit risk. We are discussing all about mutual funds with types of mutual funds, benefits of mutual funds, risk management, and how to invest in mutual funds.

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Mutual funds are subject to market risk. They are following safe investment options for the long term investor.

Yes, it is possible to lose your capital investing in mutual funds. But when you invest in a mutual fund for the long term your risk will be minimised. 

When you choose a mutual fund you should research the mutual fund , and percentage of returns, brokerage charges etc to find out the right mutual fund as per your investment goal.

Investing in a mutual fund depends on you but some of the mutual funds have a minimum deposit amount. Or you can start Rs 500 as a SIP.

You can monitor your investment in your mutual fund platform to review annual reports and other documents provided by mutual funds.

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