A Mutual Fund is a collective investment scheme that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital instruments such as shares certificates debentures, Sukuks, Certificates of Islamic Investments, Morabaha Transactions, and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Each Mutual fund is set up with a declared Investment Policy. Thus, a Mutual fund is a suitable investment for a common man, depending on his risk profile, as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. In view of diversification of investment and professional management, investing through mutual funds carries lesser risk than investing individually.
A Mutual fund / collective investment scheme may be either a closed end fund, closed end scheme or an open end scheme. The following chart might help understand the classification of mutual funds/ Collective investment schemes and Meezan Funds in each categories, as an example: