Definition of Mutual funds

Definition of Mutual funds

Mutual funds is funds collected from numerous investors and kept and invested in a mutual or collected form to earn profit. Funds are normally invested in securities such as bonds, stocks, and other financial instruments.

Mutual funds are managed by funds manager and they make decisions on how and where to invest capital and earn income and capital gains.


Brief Explanation of Mutual funds


  • Mutual funds are professionally managed by expert funds managers
  • An investor can purchase funds in small amount and number and still can earn a low risk profit (because the mutual fund pool is itself very large)
  • It gives diversification in portfolio.
  • They can be highly liquid in nature. If an investor needs money back, he requests his broker and the broker sells his stock and put the money in his account
  • There are a larger number and type of funds available out in the market and an individual can find the fund which matches his style of risk tolerance, time and investment magnitude.


  • Capital gain earned by mutual funds are not tax exempted i.e. they are taxable
  • These funds always have some kind of cost associated with them resulting in overall decrease of profit return.
  • If an individual has invested in a locked mutual funds i.e. the one in which you cannot take out your money freely; in that case, you would be charged an amount if you do it before the maturity period.


Names of various types of mutual funds are mentioned below:

  • Money market funds
  • Balanced funds
  • Fixed income funds


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