Mutual funds as vehicle
Unlike common beliefs, a mutual fund is an investment vehicle that gives you access to a diverse pool of assets. It is like the bus you take to work every day along with a bunch of other passengers. You pay a small sum and it takes you to a destination. In this case, the destination is an asset class like stocks or bonds.
Investing in assets
You, along with thousands of investors, buy mutual fund units. Now, expert fund managers use this money to purchase assets like stocks, bonds, or even gold and real estate. Your mutual fund units give you a right over these assets. This means, you indirectly have invested in these assets.
Get the safety of fixed returns
If you want the safety of a fixed rate of return, you can opt for a fixed income fund. The fund manager can only invest in fixed income government securities or corporate bonds. Your money cannot be invested in other assets like stocks.
Equity, stock indices
Equity oriented funds invest in listed shares of companies. Balanced funds invest partly in shares and partly in bonds. You also have index funds that help you invest in stock indices. This way, you can benefit from the rise in indices like Sensex or Nifty.
Did you know buying physical gold only way of investing in the yellow metal? You can also buy gold funds or gold ETFs. These are mutual funds that specialise in gold investments. It thus helps you benefit from gold without actually buying it in the physical form.
Where your money goes
If you ever worried about not having control over how your money is invested, you can stop worrying. Every fund scheme is dictated by strict investment norms. The fund prospectus gives a detailed idea about the assets it will invest in. So, an Equity fund can never invest in non-Equity instruments like bonds.