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Mutual Fund:
A mutual fund is a vehicle, set up and managed by a fund company, to
facilitate a group of investors to come together and invest in stocks,
bonds or any other security. Investors own units of the mutual fund,
which represent the assets of the fund.
Open-end fund:
In an open-end fund, the units of a mutual fund are bought and sold by
the fund company. The price at which an investor buys the fund is
usually higher than the price at which he sells the fund to the fund
company.
Closed-end fund:
Unlike the buying and selling of funds conducted by the fund company
in an open-end fund, the units of close-end funds are traded on a
stock exchange.
Net asset value (NAV):
This is the underlying value of a unit of mutual fund, calculated as
the market value of its assets minus its liabilities divided by the
number of units.
Load:
This is the price of buying a unit. Most funds sell units at a premium
to its underlying net asset value, and purchase them at the net asset
value. When the fund company charges a load when it sells units, it is
called entry load. When it charges a load at the time of buying the
units back from an investor, it is called exit load.
Dividend option:
The fund earns income from the profit it makes from investing in
securities as well as from earning dividends on those securities. Fund
companies offer investors the option of earning some of the earnings
by way of dividends.
Growth option:
The fund earns income from the profit it makes from investing in
securities as well as from earning dividends on those securities. In
growth option, the investor leaves the earned profits in the mutual
fund, which gets invested in earning more returns.
Equity Fund:
An equity fund invests most of its assets in stocks of companies. The
fund earns returns from investing in stocks in the form of capital
gains (the difference between buying and selling stocks) as well as
dividends earned from these investments. This type of fund is riskier
than balanced funds and debt funds.
Debt Fund/Income Fund/Bond Fund:
Such a fund invests in interest bearing securities mainly government
securities and corporate bonds. This fund earns returns for its
investors from interest income on its investments and profits on
trading securities. In terms of risk, this type of fund is the least
risky.
Hybrid Funds:
This fund type invests in equity shares of companies as well as debt
securities. It earns income in the form of dividends and interest as
well as buying and selling securities. This is riskier than debt fund
and less risky than equity funds.
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