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Mutual funds can be classified as the collection of funds from various investors and using these funds for investment in bonds, stocks, securities and other short term money market instruments. The manager of the funds called as the portfolio manager or the funds manager is responsible for trading the funds and making profits or losses thereafter. The value of the funds is calculated on a daily basis after calculating the total value of the funds which is divided with the number of shares held by the investors. The value of the mutual funds after this process is known as NAV or net asset value.

Benefits of mutual funds

The investors are provided with several benefits after investing in mutual funds. Some of the primary benefits of mutual funds are:

Professional management of funds: This is one the best advantage of mutual funds. The investors are rest assured about their investments as they are managed by the experts employed by the mutual fund company. An efficient mutual funds manager along with the research team can carry out the task of monitoring the companies that have been chosen by them to invest the money. These managers also have the access to all the information related to the situation of the market which helps them take vital decisions.

Low cost: Most of the mutual funds allow the investor to make investments as low as RS 5,000. This amount is sometimes even smaller than this, with the investor provided with the option of paying no or very little sales proceedings.

Liquidity: In most of the open end schemes offered by the various mutual funds companies the investor has the ability of converting his investment into liquid cash at anytime.

Diversification: This advantage is generally for the small investors. As most of the small investors do not have adequate money to spend on huge and expensive shares these mutual funds provide them with the option of investing in smaller amounts which is combined with the other small investments and everything combined together bring benefits of huge investment.

Flexibility and convenience: Mutual funds provide the investors with a lot of convenience and flexibility. Rather then investing in a single share the investor is provided with the power of investing in several and diversified portfolios with the help of mutual funds. On the other side the mutual funds manager manages all the affairs of the funds straight from collecting funds on behalf of the investors to constantly looking out for various opportunities.

Types of mutual funds

There are basically two types of mutual funds found in the market. The first one is the open ended mutual funds while the second one is the closed ended mutual funds.

Open ended mutual funds: These kinds of mutual funds are generally sponsored by a specific mutual fund company. This type of mutual fund is generally valued by some outside valuation agent or the funding company itself. Most of the portions of this kind of funds are invested in highly liquid securities while the rest of the amount is spent in short term or other money market securities.
Closed ended funds: These are the real financial securities and are also traded in the stock market. The sponsor or the mutual fund company will do the task of creation of a trust which is used for raising money through underwriting that provides the plan of investment. The funds are managed by the fund manager who is responsible for the profits or losses of the mutual fund.