The investment directly made in a particular share may be riskier for general public. To mitigate this risk, to some extent, the investor chooses mutual funds due to its professionalism and management diversification". C

Mutual Funds are a vehicle that collects money from investors to buy securities. These investors have a common objective, and this pool of money is advised by the fund manager who decides how to invest the money. With good fund management, the Mutual Fund Manager (or Portfolio Manager) generates returns for the investors, which are passed back to investor. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with SEBI before it can collect funds from public. The investors should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. Structure and Agencies involved in Mutual Fund A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company and a custodian. SEBI prescribes comprehensive set of guidelines in the functioning of a mutual fund through the SEBI (Mutual Funds) Regulations, 1996. These regulations stipulate that a mutual fund must consist of five important entities: 1. Sponsor - Sponsor is the principal body, who brings the capital as per the guideline issued by SEBI to start a mutual fund. 2. Trust & Trustee - Trust is created by sponsor and trustees are appointed to manage the operations of a trust. The trustees' job is to ensure that all the funds are managed as per the defined objective and investors' interest is protected. 3. Asset Management Company (AMC) - Trustee appoints AMC to manage the funds of the investors and, in return, get the fee to manage the fund. 4. Custodian - Custodian job is to the safekeeping of the investors' fund and securities and to ensure that it would be used for intended purpose only. 5. Registrar and Transfer Agent (RTA) - RTAs job is to manage the backend operation of the mutual fund and managing investors' transaction request and other related services. Difference Between Open Ended and Close Ended Schemes of Mutual Funds Open Ended Close Ended Can be purchased on any transaction day Can be purchased only during New Fund Offer (NFO) Can be redeemed on any transaction day [Except when units are locked-in in the case of Equity-Linked Savings Scheme (ELSS) funds] Can be redeemed only at maturity High Liquidity Low on liquidity