Matual Fund

Initially, the concept of mutual funds started with people who knew each other, pooled their money together and were willing to risk the venture used to put in the share capital of a company. It surfaced slowly that many people were interested in financial investment in the company but want to stay away from the daily hassle of managing the company. The concept of passive investing slowly grew in companies. People pool their money together and hire an investment manager to manage their funds for them. The asset management companies or the AMCs, as they are known, manage the mutual funds for people. They define profitable avenues where opportunities exist and which they believe will give significant return over the medium to long term. Based on the information released by the AMCs, the investor decides if he wants to invest his fund in a particular avenue that meets his objective, which is that the new fund should fit his required risk-return profile. Mutual funds, unlike companies do not take the risk of a business directly. Depending on where they decide to invest their funds, they get back the expected returns with corresponding risks. Equity funds are supposed to be the moist risky followed by debt funds. Cash funds are considered almost risk free. The standard theory of finance believes that the riskier the funds, higher will be the returns in the long run.