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FUNCTIONS OF MUTUAL FUNDS IN BRIEF

1)      New fund offer (NFO) release : An AMC (Asset management company) can start a Mutual Fund scheme by launching its NFO. It creates and shares the strategy of the scheme before it is being launched. Investors can then decide whether and how much they should invest. NFO units are often priced at a low ticket such as Rs 10.

2)      Pooling money :   After the NFO, fund houses receive funds from interested investors to purchase shares in stocks, bonds and other assets. Investors who did not participate in NFO can still buy the units of the fund and after it gets operational. Investors can buy Mutual fund units according to their capacity of investment. It is however necessary to make sure about the research to be done about the fund house’s objective as well as the reputation.

3)      Investment in securities :   The most important functions of Mutual funds is that it provides investors access to a diversified portfolio of securities. By pooling money from multiple investors, Mutual funds can invest in various assets, including stocks, bonds, commodities and real estate. This diversification helps to reduce the risk associated with investing in a single security. The scheme’s strategy determines how the fund manager will invest the funds.  The fund manager does extensive research on the economy, industries and companies before making an investment decision. The fund manager then buys the most appropriate securities that will generate optimum returns for unitholders.

4)      Return of Funds :  As mutual funds generate returns, the gains can be distributed among investors or retained in the scheme for further growth. Investors receive payouts if they choose the IDCW option (Income Distributed Cum Capital Withdrawal). If they choose the growth option, the gains are retained in the scheme and allowed to grow further.

5)      Liquidity :  Mutual funds offer liquidity to investors as they can buy or sell Mutual Fund units on any business. Investors can redeem their units at the fund’s prevailing Net Asset Value (NAV). This liquidity feature provides flexibility and easy access to the invested capital.