Mutual Funds

Mutual funds are a type of certified managed combined investment scheme that gathers money from many investors to buy securities.

Mutual funds are identified by their principal investments. They are the 4th largest category of funds that are also known as money market funds, bond or fixed-income funds, stock or equity funds, and hybrid funds. Funds are also categorized as index-based or actively managed.

Mutual funds can pass taxable income to their investors every year. The type of income that they earn remains unchanged as it gets transferred to the shareholders. For e.g., mutual fund distributors of dividend income are described as dividend income by the investor. There is an exception: net losses that are incurred by a mutual fund are not distributed or passed through fund investors.

Mutual funds invest in various kinds of securities. The various types of securities that a particular fund may invest in are mentioned in the fund's prospectus, which explains the fund's investments objective, its approach, and the permitted investments. The objective of the investment describes the kind of income that the fund is looking for. For e.g., a "capital appreciation" fund generally looks to earn most of its returns from the increase in prices of the securities it holds rather than from a dividend or the interest income. The approach of the investment describes the criteria that the fund manager may have used to select the investments for the fund.​

​ The investment portfolio of a mutual funds investment is continuously monitored by the fund's portfolio manager or managers who are either employed by the fund's manager or the sponsor.