What is a Mutual Fund?

A Collective Investment Scheme (Mutual Fund) refers to an investment fund, unit fund, or any similar participatory fund management program operated by a scheme manager. In this scheme, investment capital is mobilized with the participation of various individuals or institutions, managed under the manager’s responsibility, and the returns generated through efficient investment services are distributed to the participants of the scheme on a proportional basis.

A mutual fund collects savings from a large number of investors and invests them in specified financial instruments. It maximizes the use of the knowledge and experience of professional managers, which individual investors may not possess. It also benefits from economies of scale, which individual investors cannot usually achieve on their own.

In an open-ended mutual fund scheme, investors can participate at any time. Such a scheme does not have a fixed maturity period. Investors can buy or sell the units they hold at any time, and transactions are carried out based on the prevailing Net Asset Value (NAV).

A closed-ended mutual fund scheme is operated for a fixed size and a fixed duration. Investors are allowed to purchase units only within a predetermined time period. After the scheme matures, investors sell their units at the prevailing Net Asset Value (NAV).