Mutual funds function by pooling in funds from different investors and invest in areas as specified in the objectives specified in offer document.
Following are the benefits that investors derive out of MFs:
They reduce risk through diversifying the investor funds to different investment classes.
Many times, investors may not have the amount to buy a round of shares. Mutual funds help investors do so by reducing the denominations of shares.
It is relatively easy to get in and out of a mutual fund.
Mutual funds are managed by professional asset managers.
They are flexible, transparent and tax-free.
Open-ended funds - these are available for repurchase and subscription on a continuous basis.
Close-ended funds - these funds have a stipulated maturity period of 5-7 years. The fund is open for subscription only during specific period at the time of launch of the scheme.
Interval fund - these funds combine the features of both open ended and close-ended schemes, thus these funds are open for sale or redemption during pre-determined intervals.