Mutual fund

A Mutual fund collects money from different investors and invests money on their behalf. They also charge small fee for managing the money. Mutual funds are an ideal investments vehicle for regular investors who do not know much about investing. There are different scheme available from which investors can choose based on their financial goals.

How to invest in mutual funds?

Any one who wants to invest in mutual funds can invest directly or hire the services of a mutual fund advisor. If you are investing directly you will invest in the direct plan of a mutual fund scheme. If  you are investing through an advisor or intermediary you will invest in the regular plan of the scheme.

 

 

How does a mutual fund operates:

A mutual fund company collects money from several investors and invest it in various options like stocks, bonds,etc. This fund is managed by professionals who understand the markets well and try to accomplish growth by making strategic investments. Investors get units of the mutual fund according to the amount they have invested. The assest mangment company is responsible for managing the investments for the various schemes operated by the mutualfund.

Different types of mutual fund schemes :

Open ended Fund:

An open ended fund is a fund that is available for subscription and can be redeemed on a continuous basis. It is available for subscription through out the year and investors can buy and sell units at NAV realted prices.These funds don’t have a fixed maturity date.

Close ended Fund:

A close ended fund is a fund that has a defined maturity period 3 to 6 years. These funds are open for subscription for a specified period at the time of initial launch.These funds are also listed on recognized stock exchange.

Interval funds:

Interval funds combines the features of both open ended and close ended funds. These funds may trade on stock exchange and are open for sale or redemption at predetermined intervals on the prevailing NAV.

 

Based on Investment objectives

Equity/growth Funds:

This funds invest a major part of its corpus in stocks and the investment objective of these funds is long term capital growth. Equity funds invest minimum 65% of its corpus in equity and equity related securities. These funds may invest in a wide range of industries or focus on one or more industry sectors.

Debt/Income Funds:

This funds generally invest in securities such as bonds, corporates debentures. Governemnt securites and money market instruments.These funds invest minimum 65% of its corpus in fixed income securities.  By investing in debt instruments these funds provide low risk and stable income to investors with preservation of capital.

Balanced funds:

These frunds invest in both equaties and fixed income instruments in line with the predetermined investment objective of the scheme. These funds provide both stability of returns and capital appreciation to investors. These funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth.

Money Market/Liquid Funds:

Money Market/Liquid Funds invest in safer short term instruments such as Tresuary bills. Certificates of deposit and commercial paper for a period of less than 91 days. The aim of money Market/liquid funds to provide easy liquidity preservation of capital and moderatre income.

Gilt Funds:

These funds invest in government securities exclusively. These funds carry no credit risk,they are associated with interest rate risk. These funds are vcery safe to invest in.

 

Benefits of investing in mutual funds

When any one invest in mutual fund money is taken care by finance professionals. Investors who do not have the time or skill to manage their own portfolio can invest in mutual funds. These mutual funds provide the benefit of diversification across different sectors and companies. Mutual funds widen investments across various industries ans asset classes. Mutual funds are usually very liquid investments.Unless they have a pre specificed lock in period your money is available to you anytime you want subject to exit load. Investors can benefit from the convenience and flexibility offered by mutual funds to invest in a wide range of schemes. The option of systematic investment and withdrawl is also offerd to investors in most open ended schemes.

Risks involved in investing mutual funds

Mutual funds invest in different securities like stocks or fixed income securities depending upon the funds objectives. As a result different schemes have different risks depending on the underlying portfolio. The value of an investment may decline over a period of time because of economic alternations or other events that affect the overall market.Investors can not determine the exact composition of a funds portfolio at any given time.nor they can directly influence which securities the fund manger buys.