BASIC CONCEPT

From investors’ point of view, Mutual fund is a professional route to invest in stock market, bond market and money market. A mutual fund just collects money from various investors and invests in the above markets as per the mandate of the investor according to the chosen scheme.

Money collected under equity schemes is invested in stock market and that under Debt Schemes (income scheme) in bond market and liquid scheme in money market. When we choose to invest in an equity scheme means we are indirectly investing in stock market but through professional hands. Similar is the case with the choice of Income scheme and liquid schemes.

Returns on MF schemes are market linked. No MF schemes guarantee any sort of returns. Hence we should never consider that we are investing in mutual funds. We should keep in mind that by choosing to invest in a MF scheme, we are in fact investing in stock market, bond market or money market but through professional hands.

Please be very clear that we, the investors bear the entire risks of the markets. Mutual funds are just providing us their professional expertise in managing our investments in different markets. Under this fact, it is essential for us to understand the various markets’ risk return profile ourselves in order to take informed decisions.