A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI), that pools up the money from individual/corporate investors and invests the same on behalf of the investors /unit holders, in equity shares, Government securities, Bonds, Call money markets etc, and distributes the profits. In other words, a mutual fund allows an investor to indirectly take a position in a basket of assets.

For a retail investor who does not have the time and expertise to analyze and invest in stocks and bonds, mutual funds offer a viable investment alternative. This is because: Mutual Funds provide the benefit of cheap access to expensive stocks Mutual funds diversify the risk of the investor by investing in a basket of assets A team of professional fund managers manages them with in-depth research inputs from investment analysts. Being institutions with good bargaining power in markets, mutual funds have access to crucial corporate information which individual investors cannot access.

The financial theory states that an investor can reduce his total risk by holding a portfolio of assets instead of only one asset. This is because by holding all your money in just one asset, the entire fortunes of your portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced.

No. Mutual fund investments are not totally risk-free. In fact, investing in mutual funds contains the same risk as investing in the markets, the only difference being that due to the professional management of funds the controllable risks are substantially reduced.

In an open-ended mutual fund, there are no limits on the total size of the corpus. Investors are permitted to enter and exit the open-ended mutual fund at any point of time at a price that is linked to the net asset value (NAV) In the case of closed-ended funds, the total size of the corpus is limited by the size of the initial offer.

Yes. Your income from mutual funds in the form of dividends is entirely exempt from income tax provided the fund in question is an equity/growth fund where more than 65 percent of the portfolio is invested in Indian equities.