8/13/2019 Mutual Fundm,nnlknlkn

1/3

Mutual fund

A financial intermediary that pools the savings of investors for collective investment in adiversified portfolio of securities. A mutual fund is a type of professionally managed collectiveinvestment scheme that pools money from many investors to purchase securities . While there isno legal definition of the term "mutual fund", it is most commonly applied only to thosecollective investment vehicles that are regulated and sold to the general public. They aresometimes referred to as "investment companies" or "registered investment companies In theIndia, mutual funds must be registered with the SEBI, overseen by a board of directors (or boardof trustees if organized as a trust rather than a corporation or partnership) and managed by aregistered investment adviser..

The first introduction of a mutual fund in India occurred in 1963, when the Government ofIndia launched Unit Trust of India (UTI). Until 1987, UTI enjoyed a monopoly in the Indianmutual fund market. Then a host of other government-controlled Indian financial companiescame up with their own funds.

Advantages and disadvantages

Mutual funds have advantages compared to direct investing in individual securities. Theseinclude:

Increased diversification Daily liquidity Professional investment management

Ability to participate in investments that may be available only to larger investors Service and convenience Government oversight Ease of comparison

Mutual funds have disadvantages as well, which include:

Fees Less control over timing of recognition of gains Less predictable income No opportunity to customize

Types

There are 3 principal types of mutual funds in the United States: open-end funds , unit investmenttrusts (UITs); and closed-end funds . Exchange-traded funds (ETFs) are open-end funds or unitinvestment trusts that trade on an exchange; they have gained in popularity recently. While theterm "mutual fund" may refer to all three types of registered investment companies, it is morecommonly used to refer exclusively to the open-end type.

http://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Unit_Trust_of_Indiahttp://en.wikipedia.org/wiki/Unit_Trust_of_Indiahttp://en.wikipedia.org/wiki/Unit_Trust_of_Indiahttp://en.wikipedia.org/wiki/Open-end_fundhttp://en.wikipedia.org/wiki/Open-end_fundhttp://en.wikipedia.org/wiki/Open-end_fundhttp://en.wikipedia.org/wiki/Unit_investment_trusthttp://en.wikipedia.org/wiki/Unit_investment_trusthttp://en.wikipedia.org/wiki/Unit_investment_trusthttp://en.wikipedia.org/wiki/Unit_investment_trusthttp://en.wikipedia.org/wiki/Closed-end_fundhttp://en.wikipedia.org/wiki/Closed-end_fundhttp://en.wikipedia.org/wiki/Closed-end_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Closed-end_fundhttp://en.wikipedia.org/wiki/Unit_investment_trusthttp://en.wikipedia.org/wiki/Unit_investment_trusthttp://en.wikipedia.org/wiki/Open-end_fundhttp://en.wikipedia.org/wiki/Unit_Trust_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_scheme

8/13/2019 Mutual Fundm,nnlknlkn

2/3

Open-end funds

Open-end mutual funds must be willing to buy back their shares from their investors at the endof every business day at the net asset value computed that day. Most open-end funds also sellshares to the public every business day; these shares are also priced at net asset value. A

professional investment manager oversees the portfolio, buying and selling securities asappropriate. The total investment in the fund will vary based on share purchases, shareredemptions and fluctuation in market valuation. There is no legal limit on the number of sharesthat can be issued.

Closed-end funds

Closed-end funds generally issue shares to the public only once, when they are created throughan initial public offering . Their shares are then listed for trading on a stock exchange . Investorswho no longer wish to invest in the fund cannot sell their shares back to the fund (as they canwith an open-end fund). Instead, they must sell their shares to another investor in the market; the

price they receive may be significantly different from net asset value. It may be at a "premium"to net asset value (meaning that it is higher than net asset value) or, more commonly, at a"discount" to net asset value (meaning that it is lower than net asset value). A professionalinvestment manager oversees the portfolio, buying and selling securities as appropriate.

Unit investment trusts

Unit investment trusts or UITs issue shares to the public only once, when they are created. UITsgenerally have a limited life span, established at creation. Investors can redeem shares directlywith the fund at any time (as with an open-end fund) or wait to redeem upon termination of thetrust. Less commonly, they can sell their shares in the open market.

Unit investment trusts do not have a professional investment manager. Their portfolio ofsecurities is established at the creation of the UIT and does not change.

Exchange-traded funds

A relatively recent innovation, the exchange-traded fund or ETF is often structured as an open-end investment company, though ETFs may also be structured as unit investment trusts,

partnerships, investments trust, grantor trusts or bonds (as an exchange-traded note ). ETFscombine characteristics of both closed-end funds and open-end funds. Like closed-end funds,ETFs are traded throughout the day on a stock exchange at a price determined by the market.However, as with open-end funds, investors normally receive a price that is close to net assetvalue. To keep the market price close to net asset value, ETFs issue and redeem large blocks of

their shares with institutional investors.

Investments and classification

Mutual funds are normally classified by their principal investments, as described in the prospectus and investment objective. The four main categories of funds are money market funds, bond or fixed income funds, stock or equity funds and hybrid funds. Within these categories,

http://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Exchange-traded_notehttp://en.wikipedia.org/wiki/Exchange-traded_notehttp://en.wikipedia.org/wiki/Exchange-traded_notehttp://en.wikipedia.org/wiki/Exchange-traded_notehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Initial_public_offering

8/13/2019 Mutual Fundm,nnlknlkn

3/3

funds may be subclassified by investment objective, investment approach or specific focus. TheSEC requires that mutual fund names not be inconsistent with a fund's investments. Bond, stockand hybrid funds may be classified as either index (passively managed) funds or activelymanaged funds.

Money market funds

Money market funds invest in money market instruments, which are fixed income securities witha very short time to maturity and high credit quality. Investors often use money market funds as asubstitute for bank savings accounts, though money market funds are not government insured,unlike bank savings accounts.

Bond funds

Bond funds invest in fixed income or debt securities. Bond funds can be subclassified accordingto the specific types of bonds owned (such as high-yield or junk bonds , investment-gradecorporate bonds, government bonds or municipal bonds) or by the maturity of the bonds held(short-, intermediate- or long-term).

Stock or equity funds Stock or equity funds invest in common stocks which represent an ownership share (or equity) incorporations. Stock funds may invest in primarily U.S. securities (domestic or U.S. funds), in

both U.S. and foreign securities (global or world funds), or primarily foreign securities(international funds). They may focus on a specific industry or sector.

A stock fund may be sub classified along two dimensions: (1) market capitalization and (2)investment style

Market capitalization ("cap") indicates the size of the companies in which a fund invests, basedon the value of the company's stock. Each company's market capitalization equals the number of

shares outstanding times the market price of the stock. Market capitalizations are typicallydivided into the following categories:

Micro cap Small cap Mid cap Large cap

Hybrid funds

Hybrid funds invest in both bonds and stocks or in convertible securities . Balanced funds, assetallocation funds, target date or target risk funds and lifecycle or lifestyle funds are all types of

hybrid funds.

Index (passively managed) versus actively managed

An index fund or passively managed fund seeks to match the performance of a market index,such as the S&P 500 index, while an actively managed fund seeks to outperform a relevant indexthrough superior security selection.

http://en.wikipedia.org/wiki/Junk_bondshttp://en.wikipedia.org/wiki/Junk_bondshttp://en.wikipedia.org/wiki/Junk_bondshttp://en.wikipedia.org/wiki/Convertible_securityhttp://en.wikipedia.org/wiki/Convertible_securityhttp://en.wikipedia.org/wiki/Convertible_securityhttp://en.wikipedia.org/wiki/S%26P_500http://en.wikipedia.org/wiki/S%26P_500http://en.wikipedia.org/wiki/S%26P_500http://en.wikipedia.org/wiki/Active_managementhttp://en.wikipedia.org/wiki/Active_managementhttp://en.wikipedia.org/wiki/Active_managementhttp://en.wikipedia.org/wiki/Active_managementhttp://en.wikipedia.org/wiki/S%26P_500http://en.wikipedia.org/wiki/Convertible_securityhttp://en.wikipedia.org/wiki/Junk_bonds