What are Mutual Funds?
Mutual Funds can be defined as money pooled by a large number of people (Investors) having one common investment objective. The money collected under the scheme, usually run by an asset management company, is then invested in equities, bonds, money market instruments, and other securities by professional fund managers of the Mutual Funds. The portion of holding of the fund is provided as ‘Units’ to each investor in proportion to the amount invested by them. The income generated from the scheme is distributed among all the investors in proportion to their investment, by calculating Net Asset Value or NAV.
Key Features of Mutual Funds:
- Diversification: Mutual funds pool money from many investors to buy a diversified portfolio of stocks, bonds, or other securities.
- Professional Management: Managed by professional fund managers who make investment decisions on behalf of investors.
- Liquidity: Mutual funds are generally highly liquid, allowing investors to buy or sell shares on any business day.
- Affordability: Investors can start with relatively low minimum investments, making mutual funds accessible to many.
- Variety: There are various types of mutual funds available, including equity funds, bond funds, index funds, and money market funds.
Difference between Hedge Funds and Mutual Funds
Hedge Funds and Mutual Funds are two instruments through which Investment can be made in various instruments available in the market. Hedge Funds are basically private investment portfolios specifically used by the richer class whereas Mutual Funds are more associated with regular investors having one common objective.