Mutual Fund
What Is Mutual Fund?
Why Mutual Funds?
Mutual Funds offer many advantages as compared to other investment options availabe in market.
Mutual Fund Types
Agents selling Mutual Funds often use jargon that investors find difficult to comprehend. Steering away from complicated terms, we explain the basics of mutual funds – how they work, and how best they can serve as an investment tool.
FAQs
Mutual Funds are managed by qualified and experienced fund manager and their reaserch team who have access to company research reports, research analysts, critical and timely market information.
Mutual Funds are managed by qualified and experienced fund manager and their reaserch team who have access to company research reports, research analysts, critical and timely market information.
Mutual Funds are managed by qualified and experienced fund manager and their reaserch team who have access to company research reports, research analysts, critical and timely market information.
Mutual Funds are managed by qualified and experienced fund manager and their reaserch team who have access to company research reports, research analysts, critical and timely market information.
Mutual Funds are managed by qualified and experienced fund manager and their reaserch team who have access to company research reports, research analysts, critical and timely market information.
Mutual Funds are managed by qualified and experienced fund manager and their reaserch team who have access to company research reports, research analysts, critical and timely market information.
Mutual Funds are managed by qualified and experienced fund manager and their reaserch team who have access to company research reports, research analysts, critical and timely market information.
Mutual Funds are managed by qualified and experienced fund manager and their reaserch team who have access to company research reports, research analysts, critical and timely market information.
How Is Mutual Fund Set Up?
A mutual fund is set up in the form of a trust that has a Sponsor, Trustees, Asset Management Company (AMC). The trust is established by a sponsor(s) who is like a promoter of a company and the said Trust is registered with Securities and Exchange Board of India (SEBI) as a Mutual Fund. The Trustees of the mutual fund hold its property for the benefit of unit holders. An Asset Management Company (AMC) approved by SEBI manages the fund by making investments in various types of securities.
The trustees are vested with the power of superintendence and direction over the AMC. They monitor the performance and compliance of SEBI regulations by the mutual fund. The trustees are vested with the general power of superintendence and direction over AMC. They manage the performance and compliance of SEBI Regulations by the mutual fund.
How Does Mutual Fund Operate?
A mutual fund company collects money from several investors, and invests it in various options like stocks, bonds, etc. This fund is managed by professionals who understand the market 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 Asset Management Company is responsible for managing the investments for the various schemes operated by the mutual fund. It also undertakes activities such like advisory services, financial consulting, customer services, accounting, marketing and sales functions for the schemes of the mutual fund.
How Does Mutual Fund Operate?
A mutual fund company collects money from several investors, and invests it in various options like stocks, bonds, etc. This fund is managed by professionals who understand the market well, and try to accomplish growth by making strategic investments. Investors get units of the mutual fund according to the amount they have invested.
Net Asset Value (NAV) = (Assets – Debts) / (Number of Outstanding units)
Assets = Market value of mutual fund investments + Receivables + Accrued Income
Debts = Liabilities + Expenses (accrued)
For example, if the market value of securities of a Mutual Fund scheme is 500 lakh and the Mutual Fund has issued 10 lakh units of 10 each to investors, then the NAV per unit of the fund is 50.
What Are The Risks Involved In Investing In Mutual Fund?
Mutual funds invest in different securities like stocks or fixed income securities, depending upon the fund’s 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 alterations or other events that affect the overall market. Also, the government may come up with new regulations, which may affect a particular industry or class of industries. All these factors influence the performance of Mutual Funds.
The Asset Management Company is responsible for managing the investments for the various schemes operated by the mutual fund. It also undertakes activities such like advisory services, financial consulting, customer services, accounting, marketing and sales functions for the schemes of the mutual fund.
Risk and Reward
The diversification that mutual funds provide can help ease risk by offsetting losses from some securities with gains in other securities. On the other hand, this could limit the upside potential that is provided by holding a single security.
Lack of Control
The diversification that mutual funds provide can help ease risk by offsetting losses from some securities with gains in other securities. On the other hand, this could limit the upside potential that is provided by holding a single security.
- Professional Management
When you invest in a mutual fund, your money is managed by finance professionals. Investors who do not have the time or skill to manage their own portfolio can invest in mutual funds. By investing in mutual funds, you can gain the services of professional fund managers, which would otherwise be costly for an individual investor.
- Diversification
Mutual funds provide the benefit of diversification across different sectors and companies. Mutual funds widen investments across various industries and asset classes. Thus, by investing in a mutual fund, you can gain from the benefits of diversification and asset allocation, without investing a large amount of money that would be required to build an individual portfolio.
- Liquidity
Mutual funds are usually very liquid investments. Unless they have a pre-specified lock-in period, your money is available to you anytime you want subject to exit load, if any. Normally funds take a couple of days for returning your money to you. Since they are well integrated with the banking system, most funds can transfer the money directly to your bank account.
- Flexibility
Investors can benefit from the convenience and flexibility offered by mutual funds to invest in a wide range of schemes. The option of systematic (at regular intervals) investment and withdrawal is also offered to investors in most open-ended schemes. Depending on one’s inclinations and convenience one can invest or withdraw funds.
- Low transaction cost
Due to economies of scale, mutual funds pay lower transaction costs. The benefits are passed on to mutual fund investors, which may not be enjoyed by an individual who enters the market directly.
- Transparency
Funds provide investors with updated information pertaining to the markets and schemes through factsheets, offer documents, annual reports etc.
- Well regulated
Mutual funds in India are regulated and monitored by the Securities and Exchange Board of India (SEBI), which endeavors to protect the interests of investors. All funds are registered with SEBI and complete transparency is enforced. Mutual funds are required to provide investors with standard information about their investments, in addition to other disclosures like specific investments made by the scheme and the quantity of investment in each asset class.
