{"id":25605235,"date":"2025-03-12T18:36:00","date_gmt":"2025-03-12T13:06:00","guid":{"rendered":"https:\/\/entri.app\/blog\/?p=25605235"},"modified":"2026-01-23T14:15:35","modified_gmt":"2026-01-23T08:45:35","slug":"mutual-funds","status":"publish","type":"post","link":"https:\/\/entri.app\/blog\/mutual-funds\/","title":{"rendered":"What is a Mutual Fund and How Does it Work? (Complete Guide)"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_79_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69d38cd5a9e66\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d38cd5a9e66\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/entri.app\/blog\/mutual-funds\/#What_is_a_mutual_fund\" >What is a mutual fund?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/entri.app\/blog\/mutual-funds\/#How_does_a_mutual_fund_work\" >How does a mutual fund work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/entri.app\/blog\/mutual-funds\/#What_are_the_types_of_mutual_funds\" >What are the types of mutual funds?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/entri.app\/blog\/mutual-funds\/#What_are_the_benefits_of_mutual_funds\" >What are the benefits of mutual funds?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/entri.app\/blog\/mutual-funds\/#What_about_risks_and_considerations\" >What about risks and considerations?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/entri.app\/blog\/mutual-funds\/#Is_Mutual_Funds_the_Right_Choice_for_You\" >Is Mutual Funds the Right Choice for You?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/entri.app\/blog\/mutual-funds\/#References\" >References<\/a><\/li><\/ul><\/nav><\/div>\n<p><em>&#8220;Mutual funds sahi hai&#8221;\u00a0<\/em>or\u00a0<em>&#8220;Mutual funds sheri aanu.&#8221; <\/em>Most of us might have come across this advertisement, especially on television. But what is this mutual fund? How does it work? Is there any risk to it? This blog will be your ultimate guide to mastering mutual fund investment.<\/p>\n<p><em>Check out this video on Mutual Funds by Entri in Malayalam!<\/em><\/p>\n<div class=\"epyt-video-wrapper\"><iframe loading=\"lazy\"  style=\"display: block; margin: 0px auto;\"  id=\"_ytid_29063\"  width=\"480\" height=\"270\"  data-origwidth=\"480\" data-origheight=\"270\"  data-relstop=\"1\" src=\"https:\/\/www.youtube.com\/embed\/qXHn0CZXhxQ?enablejsapi=1&autoplay=0&cc_load_policy=0&cc_lang_pref=&iv_load_policy=1&loop=0&rel=0&fs=0&playsinline=1&autohide=2&theme=dark&color=red&controls=1&disablekb=0&\" class=\"__youtube_prefs__  no-lazyload\" title=\"YouTube player\"  allow=\"fullscreen; accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen data-no-lazy=\"1\" data-skipgform_ajax_framebjll=\"\"><\/iframe><\/div>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_is_a_mutual_fund\"><\/span><strong>What is a mutual fund?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Imagine there is a big pot, and a bunch of people come together to pool their money into the pot. This money is taken by a professional manager who invests it in things like stocks, bonds, or other assets. In this way, with everyone&#8217;s money being in the picture, the risk would be spread out when compared to a person investing on his own. When the investments do well, everyone gets a piece of the profit based on how much money they had put in.<\/p>\n<p style=\"text-align: center;\"><strong><a href=\"https:\/\/entri.app\/course\/mutual-funds-course-in-kerala\/\" target=\"_blank\" rel=\"noopener\">Start securing your journey towards financial freedom with Entri&#8217;s Mutual Fund Course<\/a><\/strong><\/p>\n<p>This is what makes up the core idea of a mutual fund. Of course, this is the simplified version and contains the soul of the whole process. Mutual funds can be a bit complex as they are completely subjected to market risks as well. An understanding of the ins and outs of the phenomenon is crucial before investing.<\/p>\n<blockquote>\n<h3><strong>Key takeaways:<\/strong><\/h3>\n<ul>\n<li>A <strong>mutual fund<\/strong> is a pool of money from many investors that is managed by a professional fund manager. The money is invested in a variety of stocks, bonds, or other securities, allowing investors to diversify their investments without having to buy each individual asset themselves. When you invest in a mutual fund, you own a small share of all the assets in the fund.<\/li>\n<li>Types include equity, bond, target-date, ETFs, international, MMFs, hybrid, FoFs, and capital protection funds.<\/li>\n<li>Benefits consist of diversification, involvement of professional managers, liquidity, affordability, and automatic reinvestment.<\/li>\n<li>When it comes to risks and considerations there are market risks, presence of management fees, lack of authority, overdiversification, and performance risk.<\/li>\n<\/ul>\n<\/blockquote>\n<h2><span class=\"ez-toc-section\" id=\"How_does_a_mutual_fund_work\"><\/span><strong>How does a mutual fund work?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>As stated above, a bunch of people come together to pool in some money, which is then managed by a professional manager. When a person buys shares from this fund, they gain a small part of the fund. The value of your share goes up or down based on the performance of the investments. Additionally, you would have to pay a small fee to the manager, and you can earn money through dividends or when the fund sells investments for profit.<\/p>\n<p>While a mutual fund manager decides on how to divide the money across sectors, industries, companies, etc., many funds are known as index or passive funds. This is solely based on the funds&#8217; strategy taken up by the manager. Fortunately, these portfolios or strategies do not need a lot of research, as they simply mirror indexes like the S&amp;P 500.<\/p>\n<p>Some of the top mutual fund managers are <a href=\"https:\/\/www.blackrock.com\/corporate\" target=\"_blank\" rel=\"noopener\">BlackRock<\/a>, <a href=\"https:\/\/investor.vanguard.com\/\" target=\"_blank\" rel=\"noopener\">Vanguard<\/a>, and <a href=\"https:\/\/www.fidelity.com\/\" target=\"_blank\" rel=\"noopener\">Fidelity<\/a>.<\/p>\n<p>The number of American households invested in mutual funds has increased exponentially since the time it was introduced. From 11.9% of households in 1984 to 44.7% in 2004 and about 56% in 2024. Additionally, 35% of Gen Z households invest in mutual funds. <a href=\"https:\/\/www.ici.org\/viewpoints\/24-view-mfowners\" target=\"_blank\" rel=\"noopener\">[1]<\/a><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-25605373 aligncenter\" src=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-300x300.webp\" alt=\"mutual funds\" width=\"476\" height=\"476\" srcset=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-300x300.webp 300w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-1024x1024.webp 1024w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-150x150.webp 150w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-768x768.webp 768w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-1536x1536.webp 1536w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-24x24.webp 24w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-48x48.webp 48w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-96x96.webp 96w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-75x75.webp 75w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-350x350.webp 350w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-750x750.webp 750w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_-1140x1140.webp 1140w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_2_.webp 1846w\" sizes=\"auto, (max-width: 476px) 100vw, 476px\" \/><\/p>\n<p>The major driving factor would be how the risk is reduced by investing in various entities rather than in one.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_are_the_types_of_mutual_funds\"><\/span><strong>What are the types of mutual funds?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>There are thousands of mutual funds established on a global scale, each with different investment goals and strategies. Here are the main types:<\/p>\n<ul>\n<li>\n<h3><strong>Equity Funds<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>These are mutual funds with a primary investment in stocks, along with a goal of achieving long-term capital growth. They come in various types\u2014growth, value, blend, and sector-specific funds\u2014with varying strategies. Growth funds focus on companies that are expected to grow at an above-average rate, while value funds are for the undervalued stocks (the irony, right?!). Blend funds combines both, while sector-specific focuses on various sectors, like technology or healthcare.<\/p>\n<p>Although they offer high growth, equity funds bring risk and volatility as they are subjected to market fluctuations. Managers can manage them actively, by outperforming the market, or passively, by tracking a specific index like the S&amp;P 500. They are better for investors with higher risk tolerance and a long-term investment horizon, as short-term volatility can affect their performance.<\/p>\n<p style=\"text-align: center;\"><strong><a href=\"https:\/\/entri.app\/course\/stock-market-course\/\" target=\"_blank\" rel=\"noopener\">Enrol at Entri&#8217;s Stock Market Course to start your trading journey!<\/a><\/strong><\/p>\n<ul>\n<li>\n<h3><strong>Bond funds<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>These funds invest in bonds, which are loans made to companies or governments. They leverage interest payments and are less risky than stocks. However, there&#8217;s a catch (you would have guessed it by now!). Bond funds can lose value if the interest rates increase or if the bonds don&#8217;t perform well. They are suitable for people who prefer safer, more stable investments.<\/p>\n<p>There are different types of bond funds as well:<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li><strong>Government bond funds<\/strong> invest in safe bonds from the government.<\/li>\n<li><strong>Corporate bond funds\u00a0<\/strong>invest in bonds from companies, which offer higher returns but are riskier.<\/li>\n<li><strong>Municipal bond funds <\/strong>invest in state or local government bonds, often offering tax benefits.<\/li>\n<li><strong>High-yield bond funds<\/strong> invest in riskier bonds but aim to give higher returns.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<table width=\"468\">\n<tbody>\n<tr>\n<td colspan=\"2\"><strong>Gain Financial Literacy in your Mother Tongue<\/strong><\/td>\n<\/tr>\n<tr>\n<td><a href=\"https:\/\/entri.app\/course\/stock-market-course-in-malayalam\/\">Stock Market Course in Malayalam<\/a><\/td>\n<td><a href=\"https:\/\/entri.app\/course\/mutual-funds-course-in-kerala\/\">Mutual Funds Course in Malayalam<\/a><\/td>\n<\/tr>\n<tr>\n<td><a href=\"https:\/\/entri.app\/course\/stock-market-course-in-tamil\/\">Stock Market Course in Tamil<\/a><\/td>\n<td><a href=\"https:\/\/entri.app\/course\/mutual-funds-course-in-tamil\/\">Mutual Funds Course in Tamil<\/a><\/td>\n<\/tr>\n<tr>\n<td><a href=\"https:\/\/entri.app\/course\/stock-market-course\/\">Stock Market Course<\/a><\/td>\n<td><a href=\"https:\/\/entri.app\/course\/mutual-funds-course\/\">Mutual Funds Course<\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<ul>\n<li>\n<h3><strong>Target-date funds<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Target-date funds are those types of funds that help investors save for a specific goal, like retirement. When you invest in such mutual funds, you get to decide on a fund that aligns with the year you plan to retire. You then sit back and relax as the manager does the heavy lifting for you. In the earlier years of the plan, the funds are invested in more stocks for growth; meanwhile, the latter years (near to your retirement) are meant for investing in safer investments to protect the money from market swings. Pretty cool, right!<\/p>\n<p>This is one of the best options for those who don&#8217;t have the time and expertise to manage these funds. However, it is important to remember that these funds do not guarantee success and may fail, especially in the short term.<\/p>\n<ul>\n<li>\n<h3><strong>Exchange-traded funds (ETFs)<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>These funds are similar to mutual funds, as they pool money from a group of investors and then invest it in various commodities. The difference is that, while mutual funds are bought and sold at the end of the trading day, ETFs are traded throughout the day. This gives investors more flexibility to buy or sell whenever they want within the market hours.<\/p>\n<div class=\"alert alert-info\">\n<h3><strong>Growth of ETFs: <\/strong> While traditional mutual funds are still quite popular, exchange-traded funds (ETFs), which are similar to mutual funds but traded like stocks, have been growing in popularity.<\/h3>\n<\/div>\n<p>ETFs are favourites as they have smaller fees when compared to mutual funds. They offer diversification and hold a wide variety of them, instead of buying many individual stocks or bonds. Great for people who want to invest in broad market indices or specific sectors without picking individual investments. However, beware, just like any investment, ETFs also have risks, especially if the market moves against you.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-25605466 aligncenter\" src=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/hand-adding-coins-stack-covered-dirt-plants-300x200.webp\" alt=\"mutual funds\" width=\"569\" height=\"379\" srcset=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/hand-adding-coins-stack-covered-dirt-plants-300x200.webp 300w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/hand-adding-coins-stack-covered-dirt-plants-1024x683.webp 1024w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/hand-adding-coins-stack-covered-dirt-plants-768x512.webp 768w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/hand-adding-coins-stack-covered-dirt-plants-1536x1024.webp 1536w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/hand-adding-coins-stack-covered-dirt-plants-2048x1365.webp 2048w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/hand-adding-coins-stack-covered-dirt-plants-150x100.webp 150w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/hand-adding-coins-stack-covered-dirt-plants-750x500.webp 750w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/hand-adding-coins-stack-covered-dirt-plants-1140x760.webp 1140w\" sizes=\"auto, (max-width: 569px) 100vw, 569px\" \/><\/p>\n<ul>\n<li>\n<h3><strong>International\/Global Funds<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>International funds are a type of mutual fund that invests in companies outside of your country. Talk about upping your game! Your funds are invested in profitable companies worldwide and thus help you diversify your portfolio and reduce risks by putting it all in one country. The biggest flex is that you get a chance to benefit from this opportunity if the country&#8217;s economy is faring comparatively.<\/p>\n<p>As you guessed by now, there are increased risks in this one. Currency fluctuations may affect what you gain or lose along with any kind of political unrest and the economic instability that rises with it. Despite these risks, these funds help you to diversify your portfolio and increase your profit margins internationally.<\/p>\n<ul>\n<li>\n<h3><strong>Money Market Funds (MMFs)<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>These types of mutual funds invest in very safe, short-term debt like government bonds or certificates of deposit. They are crafted to protect your fund and offer a small return, which is higher than a regular savings account but lower than stocks or bonds. This is ideal for people who want less risk but want to put their money in something that accumulates a little interest.<\/p>\n<p>Since they provide less risk and less profit, they are best suited for conservative investors or anyone who needs to keep their money for a short period. If you&#8217;re looking for higher profits, this is not the one for you, clearly.<\/p>\n<div class=\"alert alert-info\">\n<h3><strong>Fact:<\/strong> The fund managers have \u201cthe primary responsibility\u201d for looking after the interests of the fund\u2019s shareholders and serve as \u201cindependent watchdogs\u201d who \u201cfurnish an independent check\u201d upon the management of the fund.\u00a0<a href=\"https:\/\/www.idc.org\/idc\/faqs\/mutual-fund-directors#II.%20Duties%20and%20Responsibilities\" target=\"_blank\" rel=\"noopener\">[2]<\/a><\/h3>\n<\/div>\n<ul>\n<li>\n<h3><strong>Hybrid Funds<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Hybrid funds are a type of mutual fund that combine both stocks and bonds, thus creating a combination of growth and safety. Stocks help in accumulating higher returns, while bonds are safer and offer steady income. You get the best of both worlds in hybrid funds.<\/p>\n<p>There are different types of hybrid funds as well, some of which are aggressive\u2014with a large portion of the money in stocks\u2014or conservative\u2014with a focus more on bonds. Hybrid funds are suited for people who want to spread their risk and ensure a minimum profit throughout their venture.<\/p>\n<ul>\n<li>\n<h3><strong>Fund of Funds (FoF)<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>These funds take use of other funds. This &#8220;dog-eat-dog&#8221; situation actually invests in other mutual funds rather than individual stocks or bonds. This lets you buy a collection of different funds, thus diversifying your portfolio and reducing the risk. Essentially, you get multiple funds without selecting an individual one by yourself.<\/p>\n<p>FoFs charge a high amount when compared to other types. This is due to the cost of managing the primary funds invested by you and the underlying funds that will be involved while investing. Good for people who want to invest in a wide variety of assets. However, it is necessary to consider the extra costs inherent within this type.<\/p>\n<ul>\n<li>\n<h3><strong>Capital Protection Funds<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Capital Protection Funds aim to protect the investors money by investing heavily in bonds and a small amount in stocks to generate a small revenue. This provides a peace of mind, especially for conservative investors. Ideal for investors who do not want to lose their amount at the same time and can gain some modest returns. You have to keep in mind the returns are comparatively lower than aggressive investments like stocks.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-25605465 aligncenter\" src=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_3_-300x197.webp\" alt=\"mutual funds\" width=\"600\" height=\"394\" srcset=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_3_-300x197.webp 300w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_3_-1024x673.webp 1024w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_3_-768x505.webp 768w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_3_-150x99.webp 150w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_3_-750x493.webp 750w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_3_-1140x750.webp 1140w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/Untitled-_3_.webp 1209w\" sizes=\"auto, (max-width: 600px) 100vw, 600px\" \/><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_are_the_benefits_of_mutual_funds\"><\/span><strong>What are the benefits of mutual funds?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Mutual funds contain many benefits, and most of these benefits depend on the type of mutual funds as well. Here are some of the common and well-known benefits:<\/p>\n<ul>\n<li>\n<h3><strong>Diversification<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Mutual funds help you to spread your money across a variety of assets like stocks, bonds, or other securities. This method reduces risk drastically, as you don&#8217;t have to depend on just one investment.<\/p>\n<ul>\n<li>\n<h3><strong>Professional Managers<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>One major benefit is the professional and experienced fund managers who will be managing your funds, researching as to which assets should be traded. This is really helpful for people who do not have the time and expertise to invest.<\/p>\n<ul>\n<li>\n<h3><strong>Liquidity<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Your mutual fund shares can be bought and sold easily, making them a liquid investment. You can access your money whenever you need it, typically at the end of the trading day.<\/p>\n<p style=\"text-align: center;\"><strong><a href=\"https:\/\/entri.app\/blog\/sip-calculator\/\" target=\"_blank\" rel=\"noopener\">Check your SIP returns with Entri&#8217;s SIP Calculator!<\/a><\/strong><\/p>\n<ul>\n<li>\n<h3><strong>Affordability<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Mutual funds allow you to enter the market with a small amount. This helps individuals to get exposed to the harvests of the market without any large amounts of money.<\/p>\n<ul>\n<li>\n<h3><strong>Automatic Reinvestment<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Many types of mutual funds have an inherent feature wherein dividends or interests are reinvested automatically, thus making sure that the maximum profit is attained.<\/p>\n<p>These benefits make mutual funds easy, economical, and accessible, thus making them compatible for freshers and those who want a hands-off approach.<\/p>\n<table>\n<tbody>\n<tr>\n<th colspan=\"2\">Related Articles<\/th>\n<\/tr>\n<tr>\n<td><a href=\"https:\/\/entri.app\/blog\/share-market-vs-mutual-fund\/\" target=\"_blank\" rel=\"noopener noreferrer\">Share Market and Mutual Fund &#8211; Which is Best?<\/a><\/td>\n<td><a href=\"https:\/\/entri.app\/blog\/basic-mutual-fund-terms\/\" target=\"_blank\" rel=\"noopener noreferrer\">Basic Mutual Fund Terms<\/a><\/td>\n<\/tr>\n<tr>\n<td><a href=\"https:\/\/entri.app\/blog\/mutual-funds-common-types-and-terminologies\/\" target=\"_blank\" rel=\"noopener noreferrer\">Mutual Funds: Common Types and Terminologies<\/a><\/td>\n<td><a href=\"https:\/\/entri.app\/blog\/open-ended-mutual-funds-and-closed-ended-mutual-funds-comparative-analysis\/\" target=\"_blank\" rel=\"noopener noreferrer\">Open Ended Mutual Funds and Closed Ended Mutual Funds \u2013 Comparative Analysis<\/a><\/td>\n<\/tr>\n<tr>\n<td><a href=\"https:\/\/entri.app\/blog\/performance-evaluation-of-mutual-funds\/\" target=\"_blank\" rel=\"noopener noreferrer\">Performance Evaluation of Mutual Funds<\/a><\/td>\n<td><a href=\"https:\/\/entri.app\/blog\/sip-calculator\/\" target=\"_blank\" rel=\"noopener noreferrer\">SIP Calculator<\/a><\/td>\n<\/tr>\n<tr>\n<td><a href=\"https:\/\/entri.app\/blog\/mutual-fund-vs-fixed-deposit\/\" target=\"_blank\" rel=\"noopener noreferrer\">Mutual funds vs Fixed Deposits: Which is better?<\/a><\/td>\n<td><a href=\"https:\/\/entri.app\/blog\/sip-vs-lumpsum\/\" target=\"_blank\" rel=\"noopener noreferrer\">Sip or Lumpsum: Which Is Better?<\/a><\/td>\n<\/tr>\n<tr>\n<td><a href=\"https:\/\/entri.app\/blog\/mf-vs-elss\/\" target=\"_blank\" rel=\"noopener noreferrer\">What Is the Difference Between ELSS and Mutual Funds?<\/a><\/td>\n<td><a href=\"https:\/\/entri.app\/blog\/how-to-choose-mutual-fund\/\" target=\"_blank\" rel=\"noopener noreferrer\">How to Choose the Right Mutual Funds to Invest for Beginners<\/a><\/td>\n<\/tr>\n<tr>\n<td><a href=\"https:\/\/entri.app\/blog\/best-mutual-fund-apps-to-invest\/\" target=\"_blank\" rel=\"noopener noreferrer\">Best Mutual Fund Apps for Investment in India<\/a><\/td>\n<td><a href=\"https:\/\/entri.app\/blog\/jio-blackrock-flexi-cap-fund\/\" target=\"_blank\" rel=\"noopener noreferrer\">Jio BlackRock Flexi Cap Fund NFO<\/a><\/td>\n<\/tr>\n<tr>\n<td><a href=\"https:\/\/entri.app\/blog\/how-much-of-your-salary-should-you-invest-in-mutual-funds\/\" target=\"_blank\" rel=\"noopener noreferrer\">How Much of Your Salary Should You Invest in Mutual Funds?<\/a><\/td>\n<td><a href=\"https:\/\/entri.app\/blog\/how-to-start-sip-in-groww\/\" target=\"_blank\" rel=\"noopener noreferrer\">How to Start SIP in Groww<\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><span class=\"ez-toc-section\" id=\"What_about_risks_and_considerations\"><\/span><strong>What about risks and considerations?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Now let&#8217;s discuss the &#8216;dark side&#8217; of mutual funds. With benefits, there are risks associated with mutual funds, and it is always best to consider the following before investing.<\/p>\n<ul>\n<li>\n<h3><strong>Market Risks<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Nail this down in your head. The value of your fund can go up and down based on market conditions. If the overall market or specific indices perform poorly, the value of your investment goes down as well. The possibility increases if the fund holds a lot of stocks or high-risk assets.<\/p>\n<ul>\n<li>\n<h3><strong>Management fees<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>The management fees for managing your funds can result in reducing your returns over time. Fees include various divisions like expense ratios, sales charges, and other costs that may not be clear upfront.<\/p>\n<div class=\"alert alert-info\">\n<h3><strong>What is an expense ratio?<\/strong> While mutual funds can be a great investment vehicle, they do come with fees known as &#8220;expense ratios.&#8221; These are the annual fees that funds charge for managing the fund and can vary based on the type of fund.<\/h3>\n<\/div>\n<ul>\n<li>\n<h3><strong>You are not the boss.<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Once you have invested, you do not have a say on what happens to your fund. The fund manager takes decisions on your behalf and decides where to invest. Even if you do not agree with the fund manager on a particular investment, your voice or opposition doesn&#8217;t hold any value.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-25605467 aligncenter\" src=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/young-businessman-working-from-his-office-concept-hard-work-failure-_1_-300x200.webp\" alt=\"mutual funds\" width=\"501\" height=\"334\" srcset=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/young-businessman-working-from-his-office-concept-hard-work-failure-_1_-300x200.webp 300w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/young-businessman-working-from-his-office-concept-hard-work-failure-_1_-1024x682.webp 1024w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/young-businessman-working-from-his-office-concept-hard-work-failure-_1_-768x512.webp 768w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/young-businessman-working-from-his-office-concept-hard-work-failure-_1_-1536x1024.webp 1536w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/young-businessman-working-from-his-office-concept-hard-work-failure-_1_-2048x1365.webp 2048w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/young-businessman-working-from-his-office-concept-hard-work-failure-_1_-150x100.webp 150w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/young-businessman-working-from-his-office-concept-hard-work-failure-_1_-750x500.webp 750w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2025\/03\/young-businessman-working-from-his-office-concept-hard-work-failure-_1_-1140x760.webp 1140w\" sizes=\"auto, (max-width: 501px) 100vw, 501px\" \/><\/p>\n<ul>\n<li>\n<h3><strong>Overdiversification<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>While diversification is smiled upon, it&#8217;s not the same case for over-diversification. When your funds hold too many investments, your money is also spread too thinly, preventing you from benefitting fully from strong-performing assets.<\/p>\n<ul>\n<li>\n<h3><strong>Performance Risk<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Past performance may not always be an indicator of guaranteed success. Mutual funds that have performed well in the past may underperform in the future, leading to a loss of money.<\/p>\n<p style=\"text-align: center;\"><strong><a href=\"https:\/\/entri.app\/course\/forex-trading-course\/\" target=\"_blank\" rel=\"noopener\">Check out our Forex trading course to become a currency expert!<\/a><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Is_Mutual_Funds_the_Right_Choice_for_You\"><\/span><strong>Is Mutual Funds the Right Choice for You?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>All investments related to banking and finance need to be approached with the most keen eyes. Only after understanding the ins and outs of mutual funds should one venture into the path. This exhaustive list contains all that you need to get started in your investment for the future, and we suggest that you only advance after careful analysis and weighing of the benefits and risks.<\/p>\n<p>If you feel like you to want to learn more about mutual funds, check out our <a href=\"https:\/\/entri.app\/course\/mutual-funds-course-in-kerala\/\" target=\"_blank\" rel=\"noopener\">mutual funds course<\/a> to learn with industry experts and top-notch quality materials. Mutual funds may not be everyone&#8217;s cup of tea, and you might prefer trading on your own. In that case, you should check out our <a href=\"https:\/\/entri.app\/course\/stock-market-course\/\" target=\"_blank\" rel=\"noopener\">stock market course<\/a> or\u00a0<a href=\"https:\/\/entri.app\/course\/forex-trading-course\/\" target=\"_blank\" rel=\"noopener\">forex trading course<\/a>. Enrol now and secure your future with Entri. Happy trading!<\/p>\n<h2><span class=\"ez-toc-section\" id=\"References\"><\/span><strong>References<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li><em>The New Face of Fund Ownership: A Bigger and More Diverse Marketplace &#8211;\u00a0<a href=\"https:\/\/www.ici.org\/viewpoints\/24-view-mfowners\" target=\"_blank\" rel=\"noopener\">https:\/\/www.ici.org\/viewpoints\/24-view-mfowners<\/a><\/em><\/li>\n<li><em>Frequently asked questions about Mutual Fund Directors &#8211;\u00a0<a href=\"https:\/\/www.idc.org\/idc\/faqs\/mutual-fund-directors#II.%20Duties%20and%20Responsibilities\" target=\"_blank\" rel=\"noopener\">https:\/\/www.idc.org\/idc\/faqs\/mutual-fund-directors#II.%20Duties%20and%20Responsibilities<\/a><\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;Mutual funds sahi hai&#8221;\u00a0or\u00a0&#8220;Mutual funds sheri aanu.&#8221; Most of us might have come across this advertisement, especially on television. But what is this mutual fund? How does it work? Is there any risk to it? This blog will be your ultimate guide to mastering mutual fund investment. Check out this video on Mutual Funds by [&hellip;]<\/p>\n","protected":false},"author":129,"featured_media":25605551,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[802,1867],"tags":[],"class_list":["post-25605235","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles","category-stock-marketing"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is a Mutual Fund and How Does it Work? (Complete Guide) - Entri Blog<\/title>\n<meta name=\"description\" content=\"Looking for a complete guide to start your Mutual Funds investment? Click here to attain financial freedom!\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/entri.app\/blog\/mutual-funds\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is a Mutual Fund and How Does it Work? (Complete Guide) - Entri Blog\" \/>\n<meta property=\"og:description\" content=\"Looking for a complete guide to start your Mutual Funds investment? 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