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Investing in Mutual Funds – A Guide to the Best Investment
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As you probably know, Mutual Funds in India is gaining impose a curfew & have become a extremely well loved investment option. The fund industry has witnessed healthy growth in last five years or so. For the individuals wanting to build their wealth over a long period, mutual funds can be the most vital ingredient to their investment plot. It is one of the most well loved investment avenue in today’s dynamic and quick evolving markets.
Mutual Fund is nothing but a common pool of savings made by a number of investors & is an ideal investment product for an individual investor. Different investors with common investment objective contribute to make a common pool of money & this money is then invested by fund manager according to the objective of the scheme.
Mutual Funds can help investors in virtually entering the equity market with hands-off approach. There is a wide range of Mutual Fund available in the market, each one having diverse specifications to meet your requirements
There are numerous repayment of investing in mutual funds and one of the key reasons for its phenomenal success in India is the range of repayment they offer, which are unmatched by most other investment avenues.
Repayment of Investing through Mutual Funds:
For an investor, mutual fund offer wide range of repayment. Some of the key repayment include:-
1. Portfolio Diversification: Mutual funds are a convenient and affordable way of gaining access to a wide range of investments that would be very hard and time-consuming to buy and manage individually. Because mutual funds typically hold 50 to 100 different investments, they offer a degree of diversification that would be hard to achieve on your own.
2nd Professional management: an actively managed mutual funds for you to gain professional asset management. Experienced investment professionals who are committed to act only in selected markets, investment analysis, and implementation in accordance with the investment strategy.
3. Flexibility to meet your needs and goals:A wide range of mutual funds are available to help meet the needs of every type of investor, from conservative to very aggressive. Mutual funds can also help you meet a variety of investment goals, from establishing an emergency fund to saving for a vacation, retirement or education.
4. Convenient Administration: Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as terrible deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save your time and make investing simple and convenient.
5. Return Potential: Over a medium to long term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.
6. Low Costs:Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the repayment of scale in brokerage, custodial and other fees translate into lower costs for investors.
7. Liquidity: In open-finished schemes, you can get your money back promptly at Asset Value (NAV) related prices from the Mutual Fund itself. With close-finished schemes, you can sell your units on a stock exchange at the prevailing market price or avail of the facility of repurchase through Mutual Funds at NAV related prices which some close-finished and interval schemes offer you periodically.
8. Transparency: You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager’s investment strategy and outlook.
9th Flexibility: Through features such as Systematic Investment Plot (SIP), a systematic withdrawal plot (SWP) plot and the reinvestment of dividends, or you can invest future contributions to your needs and comfort.
10th Choice of Schemes: Mutual Funds offer a variety of schemes in the course of their lifetime to adapt to different needs.
11. Well Regulated: All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.
Types of Mutual Fund Schemes:-
There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectations.
Open Finished Schemes: These do not have a fixed experience. The key feature is liquidity. You can conveniently buy and sell your units at Net Asset Value(NAV) related prices, at any point of time.
Closed Finished Schemes: These funds have a set experience period (ranging from 3 years to 10 years). The ‘Unit Capital’ of such schemes is fixed as it makes a one time sale of a fixed number of units. After the offer closes, closed finished funds do no allow investors to buy or redeem units directly from funds. But, to provide liquidity to investors, closed finished funds are listed on stock exchanges. Some close-finished schemes give you an additional option of selling your units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations ensure that at least one of the two exit routes are provided to the investor under the close finished schemes.
Interval Schemes: These combine the features of open-finished and close-finished schemes. They may be traded on the stock exchange or may be open for sale or redemption during preset intervals at NAV related prices.
b) By Investment Objective:
Growth Schemes: Aims to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear small term decline in value for possible future appreciation. These schemes are not for investors seeking regular income or needing their money back in the small term.
Income Schemes: Aim to provide regular and steady income to investors. These schemes commonly invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.
Balanced Schemes aim: both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both equities and fixed income securities fixed ratio, the tender documents. Year booming stock market, NAV can not keep pace with these systems in general, and the same autumn, when the market falls.
Money Market / Liquid Schemes: Aim to provide simple liquidity, preservation of capital and moderate income. These schemes commonly invest in safer, small term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money. Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market.
c) Other Equity related Schemes:
Tax Saving Schemes: These schemes offer tax incentives to the investors under tax laws as prescribed from time to time and promote long term investments in equities through Mutual Funds.
Sector Funds: Equity funds that invest in a particular sector/industry of the market are known as Sector Funds. The exposure of these funds is limited to a particular sector (say Information Technology, Auto, Banking, Pharmaceuticals or Quick Moving Consumer Goods) which is why they are more risky than equity funds that invest in multiple sectors.
Pointer Funds: These funds have the objective to match the performance of a specific stock market pointer. The portfolio of these funds comprises of the same companies that form the pointer and is constituted in the same proportion as the pointer. Equity pointer funds that follow broad indices (like S&P CNX Nifty, Sensex) are less risky than equity pointer funds that follow narrow sectoral indices (like BSEBANKEX or CNX Bank Pointer etc). Narrow indices are less diversified and consequently, are more risky.
Fund of Funds: Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds maintain a portfolio comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a portfolio comprising of equity/debt/money market instruments or non financial assets.
How safe is investing in Mutual Funds?
In India mutual funds function as trusts. The sponsor of the fund appoints Board of Trustees who act as guardians of investor’s money. The board or Trustee Company, as an independent body acts as the protector of the unit holder’s money. These trustees ensure that investor’s interest is safeguarded and that the AMC’s operations and Fund Manager’s actions are along the professional lines. To ensure independence of Board of Trustees, SEBI mandates a minimum of two-third independent directors on the board of Trustee Company.
Apart from Trustees, the entire mutual fund industry functions under the preview of SEBI. This structure and stringent guidance make investing in mutual funds safe and simple. Fund Managers also have to function within the broad framework and rules & regulations designed by AMC.
Mutual funds are considered as propitious investment vehicle for individual investors particularly for investors who have limited resources available in terms of capital and ability to carry out their investment decisions.
article source:Best Mutual Fund Advisor
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- Mutual Fund Schemes in India – Which One to Choose?
- Investing In Bonds and Bond Mutual Funds Can Be A Good Deal.
- Information About The Different Indian Mutual Funds And Investment Avenues
