A mutual fund is a fund , where many investors collect money together; and invest in a fund hence its name is mutual funds. Let’s understand with an example. Suppose you went to buy a chocolate from a store in your childhood, but if you buy that particular chocolate then you will have to buy the whole chocolate box, but you do not have enough money to buy the entire box. In that case what you will do, tell some of your friends to buy chocolate and maybe 2 to 3 of them wish to buy the chocolate. Now everyone bought the chocolate box with money. But for the sake of buying the chocolate as it has been invested, the shopkeeper shared the chocolate like that among them, i.e., if someone gave one rupee then shopkeeper will be give one chocolate , same as a two rupees then two chocolate.
In the same way, if we think that store here is the AMC (Assets Management Company) or the Mutual Fund Company, then the shopkeeper is the fund manager, to which we are all investor invest in fund manager’s fund in AMC, after that the money fund manager invest in the finance market. Then unit divided into the everyone who has invested on it , like that chocolate divide into everyone.
Finally we can say that we may not all be able to invest in the share market, because we have no knowledge, time and patience. In that case you can think I can invest in the direct stock market, with the advice of an adviser, but in that case your adviser fees will go much expensive. But in mutual funds, we all associate one advisor hire for a fund, which is the fund manager.To whom you will be charged 1-2% of your investment. Thus, the mutual fund is the best option for those who can not give time to the market but want to see a better return.
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