Mutual Funds

How Do Mutual Funds Work?

How Do Mutual Funds Work?

  1. The Mutual Fund Company accumulates money from individuals for the purpose of investing.
  2. The Fund Manager invests the accumulated money from the investors in stocks, bonds and various other financial instruments depending on the type of mutual fund.
  3. These funds then generate returns which can either be positive or negative depending upon the market condition of the security.
  4. Positive returns add value to the principle whereas negative returns erode the value of the Fund.
  5. The generated returns then are distributed to the investors in two ways-

A)Growth Option- In this option, the money is invested back into the fund to enjoy the benefits of compounding.

B)Dividend Option- In this option, the investor gets returns in the form of periodic payments.

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