The fund normally earns income from the profit which it makes by investing in securities. It also earns dividends on those securities. The investors are normally given the option of earning some of the earnings by way of dividends by Mutual Fund companies.
As said earlier, a fund earns income from the profit it makes from investing in securities and also in the form of dividends. In growth option, the investors leave the earned profits in the mutual fund and allow it to get invested for earning more returns. A diversified portfolio of stocks normally has capital appreciation as its primary goal. They invest in companies that reinvest their earnings into expansion, acquisitions, and research and development. Investors generally get higher potential growth in these types of funds but there is usually higher risk associated with them.
It is a mutual fund that invests in a broad based and well-diversified group of stocks. The invested funds will either be in cash or stock. Mostly an equity fund invests its assets in stocks of companies and earns returns in the form of capital gains (the difference between buying and selling stocks) as well as dividends earned from these investments. This type of fund is riskier as compared to balanced funds and debt funds.
Debt Fund/Income Fund
It is also called bond fund as this fund normally invests in mainly government securities and corporate bonds which bear interest. It may invest in short-term or long-term bonds and other securitized products, money market instruments or floating rate debt. It earns returns from interest income on its investments and profits on trading securities. This fund is the least risky of all the funds. In other words, the main investing objectives of a debt fund will usually be preservation of capital and generation of income.
This fund type invests in equity shares of companies as well as debt securities. It earns income in the form of dividends and interest as well as buying and selling securities. This is riskier than debt fund and less risky than equity funds
Some of distinctive characteristics of mutual funds include the following:
Investors purchase mutual fund shares from the fund itself (or through a broker) instead of from other investors in a secondary market (in Stock Exchange)
The mutual funds shares are purchased at per share net asset value (NAV) of the fund. Apart from that price an investor may have to pay any fees that the fund imposes at the time of purchase in the form of specified entry loads.
Mutual fund shares are “redeemable,” means one can sell oneâ€™s shares back to the fund or to a broker for the fund.
Mostly Mutual funds are constantly creating and selling new shares to attract and accommodate new investors.
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