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Mutual Fund: Definition, History, How it Works, and Different Types          

Mutual Fund: Definition, History, How it Works, and Different Types

Mutual Fund: Definition, History, How it Works, and Different Types

Mutual funds are investment vehicles that pool money from multiple investors to purchase a diversified portfolio of assets, such as stocks, bonds, and other securities. Mutual funds’ concept dates back to the 18th century when Dutch merchant Adriaan van Ketwich created a fund that allowed shareholders to invest in a diversified portfolio of government bonds. The modern mutual fund industry was born in the United States in the 1920s when investment companies began offering funds that allowed small investors to access diversified portfolios.

The working mechanism of mutual funds is relatively straightforward. Investors purchase shares of the fund, which represent a portion of the fund’s total assets. The fund is managed by professionals who use the pooled money to purchase a diversified portfolio of assets based on the fund’s investment objectives. The fund’s performance is measured by the net asset value (NAV), which is the total value of the fund’s assets minus any liabilities, divided by the number of outstanding shares.

Common types of mutual funds include equity funds, fixed-income funds, balanced funds, index funds, sector funds, and money market funds. Equity funds, also known as stock funds, invest primarily in stocks and are designed to provide long-term capital appreciation. Fixed-income funds, also known as bond funds, invest primarily in bonds and other fixed-income securities and are designed to provide regular income.

Balanced funds invest in a mix of stocks and bonds, providing a balance between capital appreciation and regular income. Index funds track the performance of a particular index, such as the S&P 500, and are designed to provide returns similar to the index. Sector funds invest primarily in one sector of the economy, such as technology or healthcare. Money market funds invest in short-term, low-risk securities, such as Treasury bills, and are designed to provide liquidity and stability.

What exactly is a Mutual Fund?

A mutual fund is an investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. A mutual fund’s primary objective is to generate capital appreciation or income depending on its investment strategy. The goal is to maximize returns for investors through capital appreciation or income generation based on individual investor strategies.

Investing in mutual funds is an easy and cost-effective way for investors to diversify their portfolios without having to purchase each security individually. Investors gain exposure to multiple securities, which helps reduce risk while potentially increasing returns by investing in mutual funds.

Mutual funds are overseen by professional fund managers who work for investment management companies (also referred to as asset management firms). These professionals possess extensive financial market experience and use it to make strategic decisions regarding which securities to buy, sell, or hold within a fund’s portfolio.

Investors ranging from individuals to large institutions such as pension funds and endowments take part in mutual funds. Mutual funds offer options suitable for investors with varying risk tolerance levels and investment goals, making them suitable for a broad base of investors.

Investors ultimately make the decision whether to buy or sell mutual funds themselves. Based on their financial goals, risk tolerance, and investment horizon, they opt for certain funds that best meet their needs. Meanwhile, fund managers make decisions regarding securities within each fund’s portfolio to meet its investment objectives.

How did Mutual Fund start?

Mutual funds have a long history dating back to Europe during the 18th century. Adriaan van Ketwich of Holland established one of the earliest mutual funds known today as Eendragt Maakt Magt or Unity Creates Strength Trust in 1774. This investment vehicle allowed investors to pool resources while diversifying holdings across industries and regions, reducing risk through diversification.

Mutual funds eventually crossed the Atlantic into America, where the Massachusetts Investors Trust became the first mutual fund established. This open-end investment company allowed investors to buy and sell shares at their net asset value (NAV), a feature still prevalent today with most mutual funds.

The history of mutual funds in India began with the establishment of Unit Trust of India (UTI) in 1963, which was India’s first mutual fund. The Reserve Bank of India and the Indian government collaborated to create UTI. Unit Linked Insurance Plan (ULIP) was introduced by an asset management company (AMC) later. The introduction of other mutual fund plans led to further growth of the industry. The main objective of mutual funds in India is to enhance financial literacy, raise awareness about financial markets and offer investors increased wealth growth potential through equity investments. By 1998, UTI had assets under management (AUM).

The public sector entered the mutual fund market in 1987 through the Life Insurance Corporation of India (LIC) and public-sector banks. The State Bank of India (SBI) launched India’s first non-UTI mutual fund scheme in June 1987, and later that year, ara Bank presented its ara Bank Mutual Fund. Other banks followed suit and created their own schemes. By 1993, the total AUM had reached Rs 47,007 crores, and more investors became active participants.

India entered an exciting new era for mutual funds with the introduction of various types of mutual fund schemes to meet various investor profiles in the third phase. Private players could launch mutual funds without restrictions from any regulatory body following the implementation of the LPG policy by the Indian government in 1992. SEBI had been created to protect investors’ interests by 1997. There were 33 mutual funds totalling Rs 1,21,805 crores, such as HDFC Mutual Fund, ICICI Prudential AMC, and Kotak Mahindra Mutual Fund among others by the end of this phase.

UTI was split into two organizations under the UTI Act of 1963 later. UTI Mutual Funds and another registered with SEBI. The 2008 global economic recession caused stock markets to drastically drop worldwide and cause investors to suffer significant losses, after which investors became much more reluctant to invest in stock markets. SEBI eliminating entry loads further compounded this situation.

How do Mutual Funds work?

Mutual funds work by pooling money from multiple investors, which is then used to purchase a diversified portfolio of securities such as stocks, bonds, or other assets. This collective investment vehicle allows investors to gain exposure to a broader range of securities, potentially diversifying risks further while potentially increasing returns.

How to buy a mutual fund
How to buy a mutual fund?

Mutual funds collect money from individuals and institutions as investments into a pool that is used to purchase different securities. They are administered by professional fund managers employed by asset management companies, who possess in-depth knowledge of financial markets and use this expertise to make strategic decisions regarding which securities to buy, sell or hold within their fund’s portfolio.

Investors gain exposure to a diverse portfolio of assets, helping reduce risk through diversification. The value of a mutual fund is determined by its net asset value (NAV), calculated daily by dividing the total asset value by outstanding shares. When investors purchase shares in a mutual fund, they become shareholders in that fund.

What is the importance of Mutual Funds?

Mutual funds play an essential role in investment for many reasons, offering advantages to both individual and institutional investors alike. People frequently turn to mutual funds due to the advantages they offer – this list provides further details.


Mutual funds use diversification as an investment strategy, spreading risk more evenly among assets to reduce any negative effect from underperforming investments that might otherwise have an adverse impact on their portfolio as a whole. This also lessens potential adverse side-effects that single underperforming assets might otherwise have had on it altogether.

Professional Management

Mutual funds are administered by knowledgeable investment professionals with years of experience evaluating various investment opportunities and making informed decisions for investors to generate long-term returns.

Affordable Investment Entry Point 

Mutual funds offer low entry points into an investment, making them suitable for even investors with limited resources. Many mutual funds allow investors to begin with small initial deposits before gradually increasing contributions over time.

Systematic Investment Plans (SIPs) 

Mutual funds offer systematic investment plans (SIPs), which allow investors to set aside an equal monthly instalment and build wealth by taking advantage of compound interest and dollar cost averaging. SIPs enable wealth accumulation over time without incurring unnecessary transaction costs and fees, such as with IRAs.

Choice and Flexibility

Every investor will be able to find an investment fund suitable to their objectives, risk profile, time horizon and goals. Investors have their choice between equity funds, debt funds, hybrid funds or index funds depending on personal preferences and goals.


Mutual funds must comply with stringent regulations that mandate they publicly release portfolio holdings, performance data and fees at regular intervals, making tracking individual fund performance easy while making more-informed choices about investment decisions.

Mutual funds offer novice as well as veteran investors alike an easily accessible, diversified, professionally managed investment option for meeting financial goals quickly and more efficiently. They boast diversification, liquidity, affordability and transparency – features that make meeting financial goals faster possible.

How to buy and sell a Mutual Fund?

Below is a step-by-step process on how to purchase and sell mutual funds.

1. Assess Your Financial Goals Before     

investing in a mutual fund, take time to assess your investment objectives, risk appetite and investment timeframe so you select an investment option that meets these parameters. This will allow you to find an MF product that best matches your goals.

2. Conduct Your Research

Take some time to familiarize yourself with various mutual fund options such as equity funds, debt funds and hybrid funds. Compare past performance, portfolio holdings, expense ratios and track records between them all before selecting one as your ideal option.

3. Select an Asset Management Company

When searching for mutual fund investments, find an AMC that has a solid track record and offers what type of mutual fund investments suit you best.

4. Meet KYC Requirements

Before investing in mutual funds in India, you must complete the Know Your Customer (KYC) process by providing your PAN card and Aadhaar card as well as other documents to verify your identity and address.

5. Open a Mutual Fund Account

You open an account directly with an AMC or through a distributor such as a bank, or online platforms like Groww, Zerodha Coin, or Paytm Money.

6. Fill Out an Application Form

Providing personal and bank details as well as your investment preferences (type of fund, amount to invest and type of investment – lump sum or SIP) are key elements in filling out an application form successfully.

7. Making Payment

Use one of the available payment methods (net banking, UPI or NEFT) to make the initial transfer payment.

How to Sell Mutual Funds

1. Evaluate Your Investment

Carefully assess its performance to see if it still fits with your financial goals and any applicable exit loads or tax implications.

2. Log In To Your Mutual Fund Account

Access your mutual fund account either through its AMC website, distributor platform (such as banks), or where it was initially purchased online.

3. Select the Mutual Fund

Navigating your investments and selecting the mutual fund you would like to sell will make selling the fund much simpler.

4. Enter Your Redemption Details

Select how many units or money you’d like to redeem before confirming the transaction.

5. Submit the Redemption Request

Submit your redemption request as a last step. A One-Time Password (OTP) is necessary to authenticate it.

6. Receive Your Proceeds

The redemption amount will be transferred directly into your registered bank account within the specified timeframe – usually 1-3 business days for equity funds and 1-2 for debt funds.

Staying aligned with your financial goals means regularly reviewing and making necessary adjustments to your mutual fund investments.

What is the advantage of Mutual Funds?

Same as the importance of mutual funds – no new info – let me know if you want me to write

What are the disadvantages of Mutual Funds?

There are drawbacks of mutual funds that investors should keep in mind. Below are seven main disadvantages.

1. Management Fees

Mutual funds impose management fees to cover the expenses incurred from professional portfolio management, which could compromise returns if your fund underperforms. These expenses could eat away at your returns significantly if performance lags behind expectations.

2. Lack of Control

You essentially give up control of your investments to fund managers by investing in a mutual fund. This means you not always agree with all their investment decisions on your behalf.

3. Tax Inefficiency

Mutual funds generate taxable capital gains distributions even if you haven’t sold any shares, creating an unnecessary tax burden for investors in higher tax brackets.

4. Liquidity risk

Certain mutual funds experience periods of reduced availability that make buying or selling shares at the desired price difficult.

5. Underperformance Risk

Mutual funds do not insulate themselves from underperforming their benchmark, meaning you potentially earn lower returns than by investing directly into stocks or other forms of investment vehicles.

6. Dilutional Effect

Any single investment within it becomes less impactful given that mutual funds pool the investments of many shareholders, which limits your upside potential as well.

7. Limited Customization

Mutual funds generally offer predetermined investment strategies with predefined holdings, limiting your ability to tailor a portfolio according to individual needs and preferences.

Investors must carefully weigh both advantages and drawbacks of mutual funds when making their decision to invest.

What are the different Types of Mutual Funds?

There are various types of mutual funds available to investors, each one offering different advantages and risks.

Different types of mutual funds
Different types of mutual funds

Here are 11 examples.

Index Funds

Index funds attempt to replicate the performance of an index like the S&P 500 or Nasdaq Composite by investing in stocks or bonds that represent that index, with their performance closely mirroring that of its index counterpart. They offer low fees, passive management and diversification but lack outperformance potential due to market fluctuations – an example is Vanguard 500 Index Fund (VFIAX).

Environmental, Social, and Governance (ESG) Funds

ESG funds specialize in investing in companies that meet certain environmental, social, and governance criteria – such as sustainable practices or ethical leadership – including ethical management practices or sustainable practices.

ESG funds evaluate companies based on various ESG factors and invest in those which satisfy desired criteria, often aligning investments with personal values while supporting corporate responsibility. But they have limited investment options and could potentially underperform. One example being Calvert US Large Cap Core Responsible Index Fund (CISIX).

Money Market Funds

Money market funds invest in short-term, high-quality debt securities such as Treasury bills and commercial paper in order to achieve stability and liquidity. Their goals are low risk, high liquidity and capital preservation with lower returns than inflation risk. An example is Fidelity Government Money Market Fund (SPAXX).

Target Date Funds

These mutual funds are designed to gradually adjust their asset allocation as retirement approaches, becoming more conservative as time progresses and automatically realigning their asset allocation, shifting stocks toward bonds as the target date approaches.

Target date funds provide easy retirement planning with automatic rebalancing. But customization be limited and the potential for underperformance exists.  An example would be T. Rowe Price Retirement 2050 Fund (TRRMX).

Bond Funds

Bond funds invest in a diversified portfolio of fixed-income securities such as corporate and government bonds to produce income through interest payments from their underlying bonds, providing regular income, diversification and lower risk than stock funds while offering regular interest payments from these securities. Bond funds have higher interest rate risk and lower returns compared to stock funds.

Fixed Income Funds

Fixed-income funds invest in a diverse portfolio of fixed-income securities such as bonds and preferred stocks, generating interest and dividend payments from these holdings to generate regular income streams through interest and dividend payments from them. Fixed-income funds offer a regular income with lower risk than stocks as well as diversification benefits. They carry greater interest rate risk and have lower returns compared to stocks. 

Equity Funds and Stock Funds

Equity funds and stock funds invest in a diversified portfolio of stocks with the aim of capital appreciation and generating returns through capital gains and dividends. Equity funds offer the potential for high returns, diversification and long-term growth but carry a higher risk than bond funds in terms of market fluctuations and fluctuations.

Asset Allocation Funds

Asset allocation funds invest in a diversified mix of stocks, bonds and other assets with the goal of producing an optimal risk-return profile. They allocate assets among various asset classes according to their investment strategy and risk tolerance profile, offering diversification, automatic rebalancing and reduced risk while simultaneously offering limited customization or potential for underperformance.

Commodity Funds

Commodity funds invest in commodities, like gold, oil or agricultural products. Commodity funds invest in physical commodities, commodity futures contracts or stocks of companies operating within the sector – offering diversification, inflation protection and potentially high returns, but at greater risk and volatility than their counterparts.

Balanced Funds

Balanced funds invest in a mix of stocks and bonds in an attempt to strike a balance between capital appreciation and income generation, and diversification and risk reduction. Balanced funds provide diversification, reduced risk exposure, combined growth and income potential. But they have limited customization and potential underperformance risks.

Understanding the risks, fees and underperformance potential associated with each fund type is of utmost importance.

Which Type of Mutual Funds is the most popular?

Equity funds are among the most popular among investors. Equity funds have long been a go-to choice for individual and institutional investors due to the advantages they present, especially the possibility of higher returns over time compared to bonds or cash equivalents. Equity funds offer diversification benefits as they typically invest in a diversified portfolio of stocks from multiple sectors and regions, helping spread risk more evenly while mitigating losses incurred due to underperformance by any single stock.

They also offer professional management. Portfolio managers overseeing these funds specialize in-stock selection and construction; they conduct research to identify opportunities with greater returns that otherwise go undetected – this service especially proves helpful to individual investors without enough time, knowledge or resources to manage their own stock portfolios themselves.

Liquidity is another advantage of equity funds since they’re generally open-ended investments that allow investors to buy and sell shares at any time for the net asset value (NAV), making equity funds an excellent way for adjusting a portfolio quickly.

Which Type of Mutual Funds is the best to invest in?

No single answer exists when it comes to selecting the ideal mutual fund investment, since this decision will depend on factors like your goals, risk tolerance, investment horizon and preferences.

What is a Mutual Fund Portfolio?

A mutual fund portfolio is a collection of mutual funds that an investor holds. It allows investors to diversify their investment holdings across various types of mutual funds with different investment objectives, asset allocation, and risk profiles. Constructing an effective mutual fund portfolio is important for investors to achieve their financial goals while managing risk.

Certain., factors must be considered when building a well-diversified mutual fund portfolio. The portfolio should align with an investor’s financial objectives, risk tolerance and investment horizon. Investors must identify their goals, like capital appreciation or regular income, and choose mutual funds that match. The portfolio should contain multiple mutual fund types to spread risk and reduce the impact of any one holding.

This diversification is achieved across asset classes, sectors and geographies. The portfolio should be regularly reviewed and rebalanced to maintain the desired level of risk and return. Investors must periodically reassess goals, and risk tolerance and adjust their portfolio accordingly.

An example mutual fund portfolio for an illustrative investor is below.

  •  Large-cap equity fund allocated 40%. 

This fund invests in established companies and aims for long-term capital growth with moderate risk.   

  • Small-cap equity fund allocated 10%. 

This fund invests in smaller, high-growth companies seeking higher long-term capital gains, with higher risk.    

  • International equity fund allocated 15%. 

They invest in non-domestic companies, offering diversification and growth potential with moderate to high risk.   

  • Bond fund allocated 25%. 

Bond funds invest in fixed-income securities like government and corporate bonds, aiming to provide regular income and capital preservation, with lower risk.

  • Money market fund allocated 10%. 

This fund invests in short-term, high-quality debt instruments offering liquidity, capital preservation and modest income with low risk.   

This sample portfolio illustrates possible allocations and fund choices. An investor’s specific allocation and funds depend on financial goals, risk tolerance and investment horizon. Consulting a financial advisor helps tailor a mutual fund portfolio to individual needs.

How to create a Mutual Fund portfolio?

Creating an effective mutual fund portfolio involves five critical steps. The steps are listed below.

  1. Define your financial goals and investment time horizon. State your objectives like retirement savings, purchasing a home or funding children’s education. Consider how long you intend to invest.
  2. Assess your risk tolerance. Factors like age, income stability and responsibilities determine your appetite for risk, guiding mutual fund selection to match your profile.
  3. Research diverse mutual fund types. Learn about equity funds, bond funds, international funds and money market funds. Each category has distinct risk and return characteristics shaping your overall portfolio.     
  4. Diversify across asset classes, sectors and geographies. Distribute investments among fund types to achieve a balance to manage risk and consistent returns over time. This diversification improves the chances of stable returns.
  5. Select high-quality funds. Choose funds with proven track records, experienced managers, and low expenses. These factors significantly impact long-term returns.
  6. Allocate assets. Determine the percentage for each mutual fund investment aligned with your goals, risk tolerance and time horizon.
  7. Regularly assess and adjust your portfolio. Review fund performance at least annually. Rebalance if allocation differs from targets or goals, risk tolerance or time horizon change.
  8. Remain disciplined with a long-term view. Avoid reacting to short-term fluctuations. Focus on long-term goals and your investment strategy.

You will be able to craft a balanced mutual fund portfolio aligned with your objectives, risk comfort and investment duration by following these steps.

What are Mutual Funds Fees and Costs?

Mutual fund fees and expenses represent the expenses related to managing and operating a mutual fund, which have a substantial effect on its returns. There are two primary fees charged by funds: management fees and expense ratios. Management fees are assessed by their fund’s asset management company or asset management company (AMC) for managing investments within their fund portfolio. This fee typically represents a percentage of net assets deducted before returning them to investors as returns.

The expense ratio measures the percentage of assets being utilized by a mutual fund to cover its operating costs – including management fees, administrative expenses and any other associated with running it. A lower expense ratio usually indicates more cost-efficient funds.

Actively managed funds typically carry higher fees than index-tracking passively managed funds, due to requiring more research and management from fund managers. Index and exchange-traded funds (ETFs) typically boast lower expense ratios as they aim to simply track an index rather than try and outperform it through active management.

Are Mutual Funds taxable?

Mutual funds in India are subject to various taxes that have a significant impact on the overall returns of investments. The tax treatment of mutual fund investments depends on the type and duration of the investment. Mutual funds in India are classified into two categories: equity-oriented funds and debt-oriented funds. The tax treatment for each category varies based on the holding period.

Equity-Oriented Funds

These funds invest at least 65% of their assets in equity shares of domestic companies. The taxation for these funds depends on the holding period. Gains earned within 12 months are considered short-term capital gains (STCG) and are subject to tax at a rate of 15%, plus applicable surcharge and cess. Equity-oriented funds with STCG are taxed at 20%. These gains are classified as long-term capital gains (LTCG) if the holding period for gains that exceed 12 months is over one year. Equity-oriented funds with gains exceeding Rs.1 lakh that fall into this category are subject to tax at a rate of 10%, without indexation benefit, and any applicable surcharge or cess. Gains up to Rs.1 lakh are exempt from taxes.

Debt-Oriented Funds

These funds invest in debt instruments such as corporate bonds, government securities, and treasury bills. The taxation for these funds varies based on the holding period. Any gains realized within 36 months are considered short-term capital gains (STCG) and taxed as per the investor’s applicable income tax slab rate. STCG on debt-oriented funds must be included as income and taxed accordingly. These gains are classified as long-term capital gains (LTCG) and taxed at 20% with indexation benefits, surcharges, and cess fees applied as applicable. LTCG on debt-oriented funds is taxed at 31% plus applicable surcharges and cess fees.

Is investing in Mutual Funds safe?

No, equity mutual funds should not be considered altogether devoid of risk. It is crucial to comprehend the prospective risks involved when investing in mutual funds, based upon fund choice and market conditions. Mutual funds carry the below risks.

Market risk

Most funds invest in stocks and bonds, rendering them prone to market fluctuations. The worth of your investment will fall or rise depending on the execution of these underlying assets.  

Credit risk

Mutual funds that invest in bonds and different fixed-income securities are susceptible to credit risk. A scenario where the bond issuers default and fail to make timely interest and principal payments will threaten the worth of the fund.

Interest rate risk

Varying interest rates have a direct impact on the value of bonds held by funds, especially debt-oriented ones. Bond prices usually fall as rates increase, potentially affecting the worth of the fund.   

Liquidity risk

Certain funds invest in less liquid securities, making it more difficult for their managers to buy or sell investments at beneficial prices when needed, which hinder overall performance.   

Manager risk

The performance of a fund depends heavily on its manager. Poor investment decisions or delays in making decisions could substantially impact performance.   

Currency risk

Funds that invest in international assets are vulnerable to currency risk, with fluctuations in exchange rates potentially negatively affecting the worth of investments.

Mutual funds are still an ideal investment choice for many investors, offering the potential for long-term capital appreciation and income generation. It is crucial to conduct in-depth research and assess all risks before investing and to consult a financial adviser when doubtful.

Are Mutual Funds traded in the Stock Market?

No, mutual funds do not trade on the stock market. Mutual funds are an investment vehicle that pools money from multiple investors to purchase a diverse portfolio of stocks, bonds, or other securities. Professional investment managers manage them on behalf of shareholders in accordance with investment strategies set out in their trust agreement; unlike individual stocks or exchange-traded funds (ETFs), however, mutual funds don’t trade on stock exchanges directly.

Mutual fund shares are purchased and sold based on their net asset value (NAV), calculated daily at the close of trading. Transactions take place directly with either the fund company itself or an intermediary such as a broker or financial advisor, unlike stocks or ETFs traded on stock exchanges where buyers and sellers trade at market-determined prices throughout each day’s trading session.

Is it better to invest in Mutual Funds than Stocks?

Success for an individual investor will ultimately depend on their goals, risk tolerance and investment knowledge. Mutual funds are an ideal choice for some investors due to their diversification, professional management and ease of investment features.

Diversification spreads investment risk across a variety of securities while professional management allows investors to rely on the expertise of fund managers who actively manage portfolios in pursuit of the fund’s investment objectives. Mutual funds simplify investment processes as investors gain exposure to an array of assets with one purchase.

Direct investments provide higher returns to investors with the knowledge and skills to select individual stocks, by carefully analyzing and selecting top performers. 

Whether investing in mutual funds or in the stock market is best hence depends entirely on an investor’s circumstances and preferences. Mutual funds provide diversification, professional management and ease of operation while direct stock investment might suit those looking for greater control over their portfolio.

What is the difference between short-term and long-term mutual funds?

Short and long-term mutual funds differ primarily in their investment objectives, time horizons and types of assets they invest in. Here is a comparison between them.

CriteriaShort-term Mutual FundsLong-term Mutual Funds
Investment ObjectiveDeliver income and capital preservation over shorter time framesGenerate capital growth and, in certain instances, income over an extended period
Time HorizonSuitable for investors with short-term investment goalsIdeal for investors who can weather short-term market fluctuations while seeking long-term returns
AssetsInvest in short-term debt instrumentsInvest in various assets, including stocks, long-term bonds and other securities
Risk and ReturnOffer lower risks with steady but modest returnsPose higher levels of risk but have the potential for greater returns over the long run
LiquidityOffer higher liquidity due to assets being easily convertiblehave reduced liquidity as assets take longer to be converted to cash without significantly altering their value

What is the difference between Mutual Funds and Exchange Traded Funds?

Mutual Funds and Exchange Traded Funds (ETFs) are both types of investment vehicles that pool investor money to invest in a diversified portfolio of securities. But there are five key differences between the two.

FeatureMutual FundsExchange Traded Funds (ETFs)
TradingBought and sold at the end of the trading day at NAVTraded throughout the day like stocks on stock exchanges
PricingNAV calculated once per dayPrices fluctuate throughout the day based on supply/demand
Management StyleCan be actively or passively managedMostly passively managed, some actively managed
FeesGenerally higher expense ratiosTypically lower expense ratios
Minimum Investmentrequire a minimum initial investmentNo minimum investment other than the cost of one share
Arjun Remesh

Head of Content

Arjun is a seasoned stock market content expert with over 7 years of experience in stock market, technical & fundamental analysis. Since 2020, he has been a key contributor to Strike platform. Arjun is an active stock market investor with his in-depth stock market analysis knowledge. Arjun is also an certified stock market researcher from Indiacharts, mentored by Rohit Srivastava.

Shivam Gaba

Reviewer of Content

Shivam is a stock market content expert with CFTe certification. He is been trading from last 8 years in indian stock market. He has a vast knowledge in technical analysis, financial market education, product management, risk assessment, derivatives trading & market Research. He won Zerodha 60-Day Challenge thrice in a row. He is being mentored by Rohit Srivastava, Indiacharts.

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