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Mutual Funds

Are you hearing more and more about mutual funds as a means of investment …!

If you are like most people, you probably have most of your money in traditional form of investments like Bank deposits, Recurring Deposit, Insurance (which should not be a probable form of investment), land and Gold.   Apart from that, investing is probably something you simply do not have the time or knowledge to get involved in. You are not the only one. This is why investing through mutual funds has become such a popular way of investing.

What is a Mutual Fund?

A mutual fund is a financial mechanism by which pooled resources of multiple investors are invested in different forms of securities. Investors are allotted units for their investments, and unit holders share the resulting profits and losses in proportion with their investments.  Risk gets diversified and since the investments are done by an experienced, professional fund manager, investors end with significantly better returns at relatively low risk. It is necessary that mutual funds be registered with the Securities and Exchange Board of India.

Mutual Fund Set Up

  • Sponsor: Establishes the trust and functions like the promoter of a company
  • Trustees: Have a hold on the property of the trust, and ensure benefit of the investors
  • Asset Management Company (AMC): Needs to be approved by Securities and Exchange Board of India (SEBI), and manages funds by making investments in different types of securities
  • Custodian: Needs to be registered with SEBI and holds the securities of various schemes of the fund in its custody

Professional Management

Each funds investments are chosen and monitored by qualified professionals who use this money to create a portfolio. That portfolio could consist of stocks, bonds, money market instruments or a combination of those.

Fund Ownership

As an investor, you own units of the mutual fund, not the individual securities. You can benefit from being involved in a large pool of cash invested by other people. All unit holders in the funds share gains and losses on an equal basis, proportionately to the amount they have invested.

Mutual Funds are diversified

By investing in mutual funds, you could diversify your portfolio across a large number of securities so as to minimise risk. By spreading your money over numerous securities, which is what a mutual fund does, you need not worry about the fluctuation of the individual securities in the funds portfolio.

Based on Structure

Closed-End Funds

A closed-end fund has a fixed number of units outstanding and operates for a fixed duration.  The fund would be open for subscription only during a specified period.  Closed-end funds are also listed on the stock exchange so it is traded just like other stocks on an exchange or over the counter. Usually the redemption is also specified which means that they are due for redemption.

Open-End Funds

An open-end fund is a very popular one that is available for subscription all through the year.  An investor does not require any demat account for investing.   The majority of mutual funds are open-end funds. Investors have the flexibility to buy or sell any part of their investment at any time at a price linked to the funds Net Asset Value.

Mutual Fund Objectives

There are many different types of mutual funds, each with its own set of goals. The investment objective is the goal that the fund manager sets for the mutual fund when deciding which stocks and bonds should be in the funds portfolio.

For example, an objective of a growth stock fund might be: This fund invests primarily in the equity markets with the objective of providing long-term capital appreciation towards meeting your long-term financial needs such as retirement or a child s education.
Depending on investment objectives, funds can be broadly classified in the following types:

  • Growth Funds
  • Value Funds
  • Tax Saving Funds
  • Sector/Theme Funds
  • Index Funds
  • Balance Funds
  • Gilt Funds
  • Income Funds
  • Money Market Funds

Ways to Invest

You can choose a Lump sum Investment followed with a SIP (systematic Investment Plan) / Lump sum alone/ SIP or STP (Systematic Transfer Plan).  Based on your Risk appetite and needs we will be in a position to provide you a solution.

Overcoming Risk and enhancing Return on Investments will be Prime Focus while deciding to invest.