| If you are thinking of investing
some money then you have thousands of options available in
the forms of mutual funds. |
| |
| Mutual Funds are financial instruments.
These funds are collective investments which gather money from
different investors to invest in stocks, short-term money market
financial instruments, bonds and other securities and distribute
the proceeds as dividends and in the form of capital appreciation. The Mutual Funds in India are in the form of trusts and are handled
by Fund Managers, also referred as the portfolio managers.
The Securities Exchange Board of India regulates the Mutual
Funds in India. The unit value of the various schemes of Mutual funds in India is known as Net Asset Value (NAV) per unit. |
| |
| Any one who is aware of stock
market is not new to mutual funds. Mutual funds have gained
in popularity with the investing public especially in the last
two decades following are some of the primary benefits. |
| |
| 1. Professional Financial Experts |
| Every Mutual Fund scheme has
a well-defined objective and behind every scheme, there is
a dedicated team of financial experts working in tandem with
specialized investment research team. These experts diligently
and judiciously study companies, their products and performance,
and after thorough analysis, they decide on the best investment
option most aptly suited to achieve the scheme’s objective
as well as investor’s financial goals. |
| |
| 2. Diversifying
Risk |
| It plays a very big part in
the success of any portfolio. Mutual funds invest in a broad
range of securities. This limits investment risk by reducing
the effect of a possible decline in the value of any one security. Mutual fund unit-holders can benefit from diversification techniques
usually available only to investors wealthy enough to buy significant
positions in a wide variety of securities. |
| |
| 3. Low Cost |
Mutual funds provide an opportunity to the investor, to invest their funds at a very low cost. A mutual fund let's you participate in a diversified portfolio for as little as Rs.5,000/-, and sometimes less. And with a no-load fund, you pay little or no sales charges to own them. |
| |
| 4. Liquidity |
| You can encash your money from
a mutual fund on immediate basis when compared with other forms
of savings like the public provident fund or National Savings
Scheme. You can withdraw or redeem money at the Net Asset Value
related prices in the open-end schemes. |
| |
| 5. Variety of Investment |
| There is no shortage of variety
when investing in mutual funds. There are funds that focus
on blue-chip stocks, technology stocks, bonds or a mix of stocks
and bonds and with due assistance from a financial expert,
the investor can choose a scheme that aptly fits his requirements,
and helps him achieve maximum profitability. |
| |
| |
| 1. Equity Funds |
| Equity funds aim to provide
capital growth by investing in the shares of individual companies.
Any dividends received by the fund can be reinvested by the
fund manager to provide further growth or paid to investors.
Both risk and returns are high but equity funds could be a
good investment if you have a long-term perspective and can
stay invested for at least five years. |
| |
| 2. Debt or Income Funds |
| The aim of debt or income funds
is to provide you with a steady income. These funds generally
invest in securities such as bonds, corporate debentures, government
securities (gilts) and money market instruments. Opportunities
for capital appreciation and risk associated are limited. |
| |
| 3. Hybrid Funds |
| The aim of balanced funds is
to provide both growth and regular income as such schemes invest
both in equities and fixed income securities in the proportion
indicated in their offer documents. The investor may wish to
balance his risk between various sectors such as asset size,
income or growth. Therefore the fund is a balance between various
attributes desired, however, NAVs of such funds are likely
to be less volatile compared to pure equity funds |
| |
| 4. Liquid Funds |
| Liquid funds are a safe place
to park your money; it is an appealing alternative to bank
deposits because they aim to provide liquidity, capital preservation
and slightly higher interest rates than bank accounts. Returns
on these funds fluctuate much less compared to other funds
as the fund manager invests in 'cash' assets such as treasury
bills, certificates of deposit and commercial paper. |
| |
| 5. Index Funds |
| Index funds are passively managed
funds i.e. the fund manager attempts to mirror the performance
of a benchmark index like the BSE Sensex or the S&P CNX
Nifty, by being invested in the same stocks. NAVs of such schemes
would rise or fall in accordance with the rise or fall in the
index. |
| |
| |
1. Resident Indian Individual/HUF
2. Indian Companies/Partnership Firms
3. Indian Trusts/Charitable Institutions
4. Banks/Financial Institutions
5. Non-Banking Finance Companies
6. Insurance Companies
7. Provident Funds
8. Schemes of other Mutual Funds’
9. Non-Resident Indians, and Persons of Indian Origin
10. Overseas Corporate Bodies (OCBs) and
11. Foreign Institutional Investors (FIIs) registered with
SEBI. |
| |
| Note:- Foreign Citizens/entities
are not allowed to invest in Mutual Funds in India. |
| |
| |
|
| 1. Dividend Payments |
| A fund may earn income in the form of dividends from the stocks invested and from the interest payments on the bond Securities. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it has earned in the form of dividends. |
| |
| 2. Earning Capital Gains |
| Earning of capital gains can be accomplished when the stocks in the portfolio are sold for profit. Mutual Funds generally sell stocks when it has increased in value. The profit that they gain from the selling of the stocks is called capital gains. |
| |
| 3. Increased NAV |
| If the market value of a fund's
portfolio increases after deduction of expenses and liabilities,
then the value (NAV) of the fund and its units increases.
The higher NAV reflects the higher value of your investment. |
| |
| also read : Tax
Liability on Mutual Funds |
