what are mutual funds,how do they work?

Answer 1

They collect money from thousands of Investors , pool it , and the expert fund managers will invest it in market [shares, bonds etc.] and the dividend and appreciation in investments are shared with the said investors. The risk involved has to be borne by the investors. Investors have the option of get in and get out of the fund at their will.

Answer 2

They are a nice way of saving funds for your future. Most people use dollar cost averaging. This is where you put a some of money every month into your mutual fund account.

The fund manager then uses the funds you and other folks place in your accounts. The fund manager uses those funds to invest in equities in the stockmarket, as well as commodities, derivatives, among other things. I

When you open a mutual funds account you are essentially paying a fund manager money to invest for you, in the hope that the fund manager will make profits for you. Hope this helps.

Answer 3

Mutual funds are organisations authorised by depts, who float schemes with specific objectives, collect money from interested investors, invest them interms of the objective of the schemes on behalf of investors, charge expenses at rates specified in prospectus and distribute surplus , if any, to investors.
Mutual fund investments does not mean that they will definetely give good returns. Their investments too are subject to market risks. Remember , during 2001, some of the mutual funds navs were Rs.2 as against face value of Rs.10.Their performance too depends on market factors,economy, global concerns etc

Answer 4

Mutual funds are an investment pool. It is in an investment trust, a corporation with rather open-ended issuance of stock (except for closed-end funds). A management company has responsibility for putting the money to work, accepting new money, paying out account withdrawals and closed accounts, advertising, and doing the government and public reports arithmetic. For that they get a fee, a percentage of the pot. Then, your money, my money, the neighbor's money, whoever has invested in it, gets put to work according to the purpose of the fund. Say it was to buy stocks of the top 100 dividend paying banks and utilities, say it was to buy of the top profits earners in the tech stocks, or the fastest growing publicly traded stocks whose majority operations are outside the US, etc. Within its focus, then OUR money is put to work. The value of our respective accounts rises and falls upon their success in managing it, or the merits of the general program. So, the question is, can you do better than that managed fund in investing your money, or do you want to leave it to some professionals whose results you can check on periodically? Don't forget the Exchange Traded Funds, they have lower fees and a simple, rigid formula. Think of them as smart bombs and dumb bombs, yet with the lower fees to do largely the same things, there is rarely a good reason to pay extra for a management company to buy, say, the S&P500 stocks when you could buy SPY, or to buy the 100 largest companies on the NYSE when you could buy NY, or search out the biggest players in nanotech when you could buy PXN, etc.

Answer 5

Best Answer - Chosen by Asker

Mutual fund is such a financial instrument used for investing which provides you an oppertunity to invest in stock markets and gain out of it with reduced risks. ie People who have less expertise to invest in stock market and lack with the skills or time they invest in a collective investment vehicle known as Mutual fund
Let me explain you by an example..

there are 5 friend A
They all want to invest in stock markets but they don't have that much knowlegdge and time so they collect money 10000 each and give to A as he is expert. After a year the money becomes 1 lakh so they distribute among them equally.

If such things are done at large ie National level or universal level than they do it through Mutual funds

Totol money is devided into units of 10 Rs each and profit is calculated on unit basis

ie New MF is priced at unit of 10Rs. If you invest 10000Rs u will be alloted 1000 units. When the stocks of this MF will grow the price of each unit will increse lets say 15 Rs after 1 year. Now when you will sell your 1000 units at a price of 15each you will get 15000 ie 50% Returns. The performance is measured by NAV (NET ASSET VALUE) of the fund

Calculation of Net Asset Value

Mutual Funds raise money by selling their shares to public and redeeming them at current net asset value. Net Asset Value is the value of assets of the each unit of the scheme. Thus is the NAV is more than the face value of Rs 10, there is an appreciation for the investment. If the NAV is less than the face value, it indicates the depreciation of the investment. NAV also includes dividends, interest accruals and reduction of liabilities and expenses apart from market value of investment. Every Mutual Fund shall compute the NAV of each scheme by dividing the net asset of the scheme by the number of units of that scheme outstanding on the date of the valuation and public the same at least in two daily newspapers at intervals not exceeding one week. However, the NAV of any scheme for special target segment or any monthly scheme which are not mandatory required to be listed in the stock exchange may publish the NAV at monthly or quarterly intervals as permitted by SEBI.


The formula for calculation of NAV