February 06 , 2013
Mutual fund is an investment vehicle that invests on your behalf in different financial assets. Contrary to a common misconception, it is not only for equity markets, but also debt markets and gold. To clear another misconception - it is only a vehicle, so it is in itself neither risky nor safe. Its risk or safety depends on whether it is a debt or equity mutual fund.
As a rough analogy, a fund is like a fruit basket you can buy in the market. The fruits themselves are shares or bonds that are present in the basket. Different baskets contain different combinations of fruits, and are accordingly priced differently. Needless to say, the basket itself has no value, and is roughly equal to the value of the fruits inside (plus a little cost of packaging).
For investment purposes, mutual funds are the best vehicles. For people having little time and inclination to regularly involve in finance, this single vehicle alone suffices for all investments! This is because you can use this vehicle to invest in almost anything – stocks, bonds, gold. Even real estate is on its way, once the regulator gives its nod.
For people of conservative risk profiles, there are debt and income funds. For people with more risk taking ability, equity funds are the instruments of choice.