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What is Mutual Fund?

A mutual fund is an investment scheme which is professionally managed by an Asset Management Company. The asset management company clubs the investment of group of people in one fund and invests their money in equities, securities, and bonds.

An investor can buy mutual funds units which will represent his share in the particular scheme. The units are bought and sold on the basis of NAV (Net Asset Value) which is updated daily by the mutual fund house. As per the mutual fund holding, the NAV keeps changing due to the volatile market conditions.

Every mutual fund house has to register their fund with SEBI. To protect the interest of every investor, SEBI has laid down strict rules for the mutual fund houses to follow. The mutual fund gives an investor access to a diverse portfolio of bonds, securities, and equities even for a small amount of investment which is not possible otherwise. Mutual funds are strategical investments which have been known for giving lucrative returns to the investors over the past decade or so.

Structure of a Mutual Fund

Board of Trustees

Every mutual fund company has a management team that consists of Board of trustees and a CEO. The responsibility of the management team is to carry out operations in interest of the shareholders. The core responsibility of the Board of Trustees is to handle and look after the administrative matters. The trustees are appointed by the sponsor. The board selects the types of funds that the trust will offer to the public. The trust hires the investment advisor, custodian and transfer agent for every fund.


The main person who establishes a mutual fund is known as a promoter of a mutual fund or more commonly as a sponsor. The sponsor is supposed to contribute around 40% or more of the net worth.. A sponsor can be a person or a financial institution or a corporate house or a bank who has a 5-year track record in the financial services business and must have made profit in at least 3 out of the 5 years.


The custodian looks after the investments made. He maintains the custody of all the shares and various other securities bought. The securities purchased by the company are kept in possession of the custodian. The custodian is responsible for safekeeping the assets at all times and ensures the withdrawal is done as per the SEBI rules.

Asset Management Company (AMC)

The Asset Management Company is the investment manager of the trust who does appropriate investments in securities as per the fund’s portfolio and the administrative functions of the mutual fund. The investment advisor is also known as the fund manager of the Mutual Fund. The AMC consists of the Chief Investment Officer, the fund managers and analysts who manage the various schemes launched. The fund manager gets a management fee which is usually a percentage of the fund’s value plus bonus if he/she performs well and makes good profit on the fund’s investment.

Registrar and Transfer Agent (RTA)

The Registrar and Transfer agents manage, maintain and update all the investment and investor-related records like processing the applications for purchase and redeem or cancel the fund shares, look after the distribution of dividend to investors. The transfer agent gets a fee for the services rendered.

Brokers / Dealers

Brokers / Dealers buy the shares and sell securities on the stock exchange for the AMC. Dealers also give valuable research reports and outlook on the markets to the Fund Manager.

Types of Mutual Funds Based on Structure

Open-ended Mutual Funds

Open ended funds can be purchased and repurchased on a continuous basis. These funds do not have a maturity period. The funds can be bought and sold on a daily basis by investors based on the NAV (Net Asset Value).

Close-ended Mutual Funds

Unlike the open ended funds, close ended funds have fixed maturity period, for example between 5 to 7 years. The funds are open for subscription only during the stipulated period at the time of the launch of the scheme.

Interval Funds

These funds are a combination of both open-ended and close-ended mutual fund schemes. The units of these funds are open for sale or redemption only during the pre-determined intervals at NAV related prices.

Mutual Fund Based on Geography

Equity Funds

Equities are one of the more preferred choices of mutual fund amongst the retail investors. The money invested in the shares of the companies are called equities. There is a high risk involved in the short term but the investment can be lucrative and beneficial for the investor in the long term.

Debt Funds/Fixed-Income Funds

The funds that get invested in rated debts like government securities, debentures, corporate bonds and other money market financial instruments are known as debt funds. These investments are considered to be less risky compared to equities. Debt funds are ideal for the investors who want regular and steady income from their mutual fund investment.

Hybrid funds / Balanced Funds

These funds keep a balance of risk in their portfolio by investing in debt as well as equity. The fund's goal is to provide both growth and regular income to the investor. Hybrid or balanced mutual funds are ideal for investors who want to play safe and don't want to take much risk in their investment.

Mutual Fund Based on Investment Objective

Growth Schemes

Growth schemes are ideal for capital appreciation in medium to longer term period as these schemes invest their money in equity funds. The funds carry high amount of risk in the short term but usually give lucrative returns in the long term.

Income Schemes

Income schemes are ideal for investors who are looking for steady income from their investment. The funds in the income scheme get invested in relatively safer government securities, bonds and corporate bonds.

Balanced Fund Schemes

Balanced fund schemes invest their funds equally in equity investments as well as debt investments. The ratio of risk involved in the investment is balanced in the balanced fund schemes. Balanced schemes are ideal for investors who don't have to take too much risk and at the same time want to avoid playing completely safe with their investments.

Money Market Schemes

The aim of money market schemes is to offer easy liquidity of the investment, capital preservation and income on the investment. Money market schemes invest normally in short term instruments like treasury bills, interbank money, commercial paper etc.

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