How do mutual funds work?

Mutual funds pool the investment of their shareholders and invest them in a variety of securities depending on the goal of the fund. Mutual fund is preferred choice of investors in India as it offers automatic diversification, liquidity and professional management.

Depending on the structure of a mutual fund, it can be categorised as - open-ended scheme, closed-ended scheme and interval scheme.
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Depending upon investment objective of the investor, the mutual fund can be categorised as - growth or equity schemes, income or debt schemes, balanced funds and money market or liquid schemes.
Depending on the time period of the investment, mutual funds can be categorised as - short-term, mid-term and long-term mutual fund.
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Mutual funds in India are regulated by the Securities and Exchange Board of India (Sebi). To start a mutual fund investment, you need to open a demat and a trading account with a broker or brokerage firm.
To start a mutual fund service, you need to have at least five years of experience in Indian financial industry and maintain positive net worth for the five years immediately preceding registry.
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You also need to have a minimum startup capital requirement of Rs 500 million for open-ended schemes and Rs 200 million for closed-ended schemes.
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Indian mutual funds are only allowed to borrow up to 20 per cent of their value to meet short-term liquidity requirements that too for a term not to exceed six months.
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