1. A Mutual Fund (MF) acts as a link that allows interested investors to pool (gather) their money to buy the units of mutual funds. The funds are contributed by the investors through opting a pre-defined Systematic Investment Plan (SIP).
2. This fund is then supervised, managed and led by a fund manager who is appointed by a mutual fund organization. The fund manager uses his expertise to channel and invest these collective funds in different financial securities of the market.
3. Financial securities include; stocks, bonds, shares, short-term money market instruments and other securities. Now let's assume that investments made in these securities have generated profits.
4. These generated profits also called as returns and made from financial securities are afterwards passed back to the investors. These profits or returns are distributed to the investors only after charging (deducting) the managerial and administrative expenses.
5. After receiving profits, investors may decide to continue their investment in mutual fund. This is known as reinvestment. The main objective of reinvestment is to generate further income from the units of the MF.
Hope you learned something :)
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