MUTUAL FUNDS

 MUTUAL FUNDS

What is a Mutual Fund: A mutual fund is not an alternative investment option to stocks and bonds, rather it pools the money of several investors and invests this in stocks, bonds, money market instruments and other types of securities.

Why choose Mutual Funds?

Mutual funds are investment vehicles, and you can use them to invest in asset classes such as equities or fixed income. We recommends that you use the mutual fund investment route rather than invest yourself, unless you have the required temperament, aptitude and technical knowledge.

We are not all investment professionals

We go to a doctor when we need medical advice or a lawyer for legal guidance. Similarly, mutual funds are investment vehicles managed by professional fund managers. And unless you have a high Investment IQ, we recommend you use this option for investing. Mutual funds are like professional money managers, however a key factor in their favour is that they are more regulated and hence offer investors the ability to analyse and evaluate their track record.

Investing is becoming more complex

There was a time when things were quite simple - the market went up with the arrival of the first monsoon showers and every year around Diwali. Since India started integrating with the world (with the start of the liberalisation process), complex factors such as an increase in short-term US interest rates, the collapse of the Brazilian currency or default on its debt by the Russian government, have started having an impact on the Indian stock market.

Some popular objectives of a mutual fund are –

Fund Objective	What the fund will invest in
Equity (Growth)	Only in stocks
Debt (Income)	Only in fixed-income securities
Money Market (including Gilt)	In short-term money market instruments (including government securities)
Balanced	Partly in stocks and partly in fixed-income securities, in order to maintain a 'balance' in returns and risk

Managed by an Asset Management Company (AMC)

The AMC hires a professional money manager, who buys and sells securities in line with the fund's stated objective.

All AMCs Regulated by SEBI, Funds governed by Board of Directors

 Basics of Mutual Fund

Net Asset Value or NAV

NAV is the total asset value (net of expenses) per unit of the fund and is calculated by the AMC at the end of every business day.

How is NAV calculated?

The value of all the securities in the portfolio in calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the fund’s NAV.

Type of Mutual Funds: 1) Open-Ended Funds

At any time during the scheme period, investors can enter and exit the fund scheme (by buying/ selling fund units) at its NAV (net of any load charge). Increasingly, AMCs are issuing mostly open-ended funds.

2) Tax Saver Funds (ELSS): 

Used for Tax Benefits U/S 80(c) these funds lock-in period three years of each month paid SIP.

3) Don't forget the index funds: 

Index funds offer you probably the ideal hedge against varying performance across sectors and across fund managers over longer-periods of time. We  recommends that you have atleast some part of your assets in index mutual funds

4) Top Ranked Mutual Funds: 

HDFC, ICICI, Kotak, Aditya Birla, Parag Parikh, UTI, SBI, Axis, Tata, Canara Rabeco, L&T, Nippon, Motilal Oswal, Principal, IDFC, Franklin, Pramerica, Mirae, DSP BlackRock, Baroda Pioneer, Sundram, Quantum etc.

Why Invest through Mutual Fund: 

Professional Money Management, Diversification, Liquidity, Affordability, Convenience, Flexibility and variety, Tax benefits on Investment. We are not all investment professionals, Investing is becoming more complex, Mutual funds provide risk diversification, Low Cost Expense Ratio/Loading.

Systematic Investment Plan (SIP)

A Systematic Investment Plan (SIP) is an investment tool which allows the investor to invest a fixed amount at regular intervals in a Mutual Fund scheme. SIP works by investing a fixed amount at a defined frequency. With this an investor does not need to time the market and can invest in a hassle-free manner and growth his money exorbitantly approximately upto15% for his better future and prospects.

For more details: POOJA MANOJ GUPTA  www.giia26.com 

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