Question

Explain how characteristics vary among mutual funds

Answer 1

Mutual Fund- It is an investment program that pools investors' money and invest it into equity and debt. Mutual fund companies invest investors' money according to their choice and risk bearing capacity.

How characteristics vary among mutual funds: We can answer this question by knowing the different characteristics of mutual fund-

1. Time Horizon- Different mutual fund schemes have different time horizon. People invest for short, medium and long term, accordingly they can choose plans. Systematic investment plan(SIP) does not have any lock in period, investors can invest into SIPs for three months, six months, one year or more. As far as Equity linked saving schemes (ELSS) are concerned, they have lock in period of three years.
2. Purpose of Investing- Investors' risk and return profiles are different. Some invest to get higher returns, some invest to save the income tax while some invest to get the benefit of diversification hence there are different mutual fund schemes that serve all the purpose.
3. Diversification- Some mutual funds are well diversified, some are less diversified, some choose the specific sector. Investors have freedom to invest into any mutual fund schemes, they can invest less money in instalments or heavy amount at a time also.

Conclusion- Mutual funds' various characteristics differ them from other investment products. Mutual funds are very good investment source for investors who want to diversify the risk and want professional management too.