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nvestors whose risk tolerance is low, dread the stock market because of the inherent fear that the market will crash and they will loose
their savings. The reasoning behind this is very straight forward: almost every boom in the market has been followed by a crash (correction as market analysts call it), when over-priced stocks in the market correct their value. In order to reduce the risk of losing ones money, it is important to have a well diversified investment portfolio. Also, it so happens that, sometimes, the money one has is not enough to buy such a diversified portfolio. It is in this context that mutual funds (also called an AMC) come into picture.
What is an AMC?
An Asset Management Company (AMC) pools money from investors and invests it in a portfolio on behalf of the investors. The money pooled is the mutual fund, which is invested in various asset classes like equity, bonds, debentures, commercial paper, and government securities. In simple words, a mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective.
26 December 2008