Investing in mutual funds

In the story beginner's guide to mutual funds, we learnt about the basics of mutual funds, its types and benefits. Here, we will dive deeper and understand the other aspects related to mutual funds. Capital protection and inflation protection Mutual funds do not offer any capital protection in a legally enforceable way. Mutual funds invest in market-linked investments and losses are always possible. However, AMCs are allowed to run 'capital-protection-oriented' funds. These funds invest a high proportion in safe fixed-income securities and a small proportion in equities. Investors who stay invested for a fixed period of time are unlikely to suffer any capital loss. Mutual funds do not offer any kind of contractual or formal inflation protection. However, when you invest in well-chosen equity funds for a period of several years, your chances of beating inflation is better than that in any other type of investment. Liquidity As per SEBI rules, all mutual funds must offer liquidity. However, there are nuances. Liquidity depends on whether a fund is open-end or closed-end. Open-end funds are perpetual funds that are always available for investment or redemption. In the case of open-end funds, the AMC itself redeems the money at the NAV-based selling price within three working days. Closed-end funds are launched for a fixed period (generally three to ten years) and you can invest in them only at the time of the initial offer. For closed-end funds, AMCs get the fund listed on a stock exchange so that you can sell your units like a stock through a stockbroker. However, this is not agreat option because

This article was originally published on November 05, 2021, and last updated on August 04, 2022.