A mutual fund is a professionally managed investment vehicle that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.
Mutual funds have various advantages and disadvantages compared to direct investing in individual securities. The primary advantages of mutual funds are that they provide economies of scale, a higher level of diversification, liquidity, and professional fund management. On the negative side, investors in a mutual fund must pay various fees and expenses.
Primary structures of mutual funds include open-ended funds, unit investment trusts, and closed-ended funds. Exchange-traded funds (ETFs) are open-ended funds or unit investment trusts that trade on an exchange. Some close-ended funds also resemble exchange-traded funds as they are traded on stock exchanges to improve their liquidity.
Equity Funds
An equity mutual fund is a collective investment scheme that pools money from investors to invest in stocks (equity securities) for long-term growth.
Debt Funds
A debt fund is an investment pool, like a mutual fund or ETF, where the core holdings are primarily fixed-income securities such as bonds and loans.
Hybrid Funds
Hybrid mutual funds invest in a mix of equities and fixed-income securities, balancing growth potential with stability for diversified portfolios.
Solution Oriented Funds
Solution-oriented funds are mutual funds designed for specific financial goals, such as retirement or education, typically with a lock-in.
Other Funds
Other funds include various mutual fund categories like ELSS, fund of funds, sector funds, and ETFs, each targeting specific investment objectives.
