What is Mutual Fund meaning, types and role in the development of the economy?

 

Creating capital remains a major problem in developing countries. If an investor wants to make a big investment or to set up an industry, then lack of capital is a major problem. This problem is met through chit funds, mutual funds, fixed deposits and bank deposits.

 

Meaning of Mutual Fund

 

A mutual fund is a type of group investment in which multiple people, both individuals and entities, jointly invest in stocks, bonds, short-term investments or other securities. This fund is usually managed by a fund manager, who determines the fund's investment and manages the profit and loss account. This manager charges investors to take care of their investment. You can buy and sell any number of mutual funds on any given day. Anyone can invest in mutual funds. A minimum investment of Rs 500 can be made in a mutual fund. Both Indian residents and NRIs can invest in mutual funds. Investors can also invest in the name of their spouse or children.

 

Types of Mutual Fund

 

Mutual funds are divided into several categories based on risk, return, size and investment. We have stated only four categories here;

 

1. Equity funds

2. Fixed-Income Funds

3. Hybrid Mutual Fund

4. Solution-Oriented Mutual Fund

 

Let's now know about them one by one

 

1. Equity Fund: - This scheme invests money directly in shares. These schemes can be risky in the short term, but in the long term, it helps you to earn the best returns. Depending on the size of the companies, they are divided into small caps, mid-caps and large caps. This type of mutual fund is preferred by those who like to take more risk.

 

2. Fixed-Income Funds: - These types of mutual funds give fixed returns to the owners. Some fixed returns are funds; Corporate bonds, government bonds or other debt instruments. The mutual fund manager basically pays interest income to his investors. Investments in this type of mutual fund are done by investors who do not want to take a risk.

 

3. Hybrid Mutual Fund: - Hybrid mutual funds or exchange-traded funds (ETFs) invest in more than one type of investment security, such as stocks and bonds. These mutual funds; The schemes invest in both equity and debt. While choosing these schemes, investors are required to take care of their risk-taking ability.

 

4. Solution-Oriented Mutual Fund: - Solution-oriented mutual fund schemes are created according to a specific goal or solution. These may include goals such as retirement plans or education of children and the marriage of a girl child. You are required to invest in these schemes for at least five years.

 

Features & Benefits of Mutual Funds

 

Diversification of funds into equity and debt securities leads to diversification of risk. Liquidity in mutual funds is much higher than other investment options. An investor can make partial or full withdrawals as per his requirement. Transparency is seen in mutual funds, in which investors know where the money is being invested. Mutual funds investment costs less because there is no entry fee when investing in mutual funds. Industry experts manage the funds of mutual funds, so that money is invested in a better place. Investors get the benefit of tax exemption in equity and debt funds. There is the freedom to switch investment funds from one fund to another.

 

Role of mutual funds in economic development

 

As the definition of mutual funds says, there is a pool of collective investment by various investors and institutions, ie a place where many people have their money collected in one place. Mutual Funds It helps in arranging funds for the purpose of investment in the economy. Through the investment by mutual funds, the public mobilizes small savings, thereby developing the spirit of saving and investing in the people. We know that there is a lack of capital accumulation in developing countries like India. But with the help of mutual funds, there is capital accumulation in the country and large industries get a sufficient amount of money. Hence mutual funds help in capital accumulation which is important for the development of a developing country like India. This discourages wasteful hoarding of money in the house. In olden times people used to keep money buried in the ground but now it does not happen. Mutual funds help create an investment climate in the country. It is helpful in job creation. Mutual funds help in raising funds to start many large investment projects in the country.