Mutual Funds Set Up:
Operating A Mutual Fund:
A mutual fund company collects money from several investors and invest it in various options like stocks, bonds etc. This investment is managed by professionals who had good knowledge of market and tries to accomplish growth.
Investors get unit of funds according to amount they have invested. AMC is responsible for managing the investment from the various schemes operated by mutual fund.
Net Asset Value:
Mutual Funds are operated on the basis of NAV. Net Asset Value is the total asset value per unit of the fund and is calculated by the Asset management Companies at the end of every business day.
Types Of Mutual Fund:
Based on the maturity period
- Open-ended Fund An open-ended fund is a fund that is available for subscription and can be redeemed on a continuous basis. It is available for subscription throughout the year and investors can buy and sell units at NAV related prices. These funds do not have a fixed maturity date. The key feature of an open-ended fund is liquidity.
- Close-ended Fund A close-ended fund is a fund that has a defined maturity period, e.g. 3-6 years. These funds are open for subscription for a specified period at the time of initial launch. These funds are listed on a recognized stock exchange.
- Interval Funds Interval funds combine the features of open-ended and close-ended funds. These funds may trade on stock exchanges and are open for sale or redemption at predetermined intervals on the prevailing NAV.
- Professionally Managed
- Low transaction cost
- Well regulated
Risks Involved In Mutual Fund:
- Risk and Reward: The diversification that mutual funds provide can help ease risk by offsetting losses from some securities with gains in other securities. On the other hand, this could limit the upside potential that is provided by holding a single security.
- Lack of Control: Investors cannot determine the exact composition of a fund’s portfolio at any given time, nor can they directly influence which securities the fund manager buys.