Wednesday, April 30, 2008

What is Mutual Fund ?

Well in the most simplest of terms. Take an analogy of five young friends who want to start a business together. They need say 25 lakhs to start the business. Each one of has only 5 lakhs, None of the friends can start the business on his own but all of them together can definitely start the business on a partnership basis. same way

In mutual fund during NFO (New Fund offer) the fund house decides on the objective of the fund and launch the fund. e.g recently reliance launched Reliance Natural Resources fund. The objective was to invest money in the companies which deals with natural resources like power, oil, metals etc). People who think this strategy will work will start investing the money in there own capacity. All this collected money is pooled together and Professional Fund Manager decides in which companies this money should be invested.

There are various types of Mutual Funds each with there own objective and strategy. Most new comers should stick with Large cap equity diversified fund from a reputed business house. Always while dealing with your hard earned money go after the REPUTED fund house who have great track record.

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