What is
Mutual Fund ?
It is a trust that collects money from a number of investors who share a common investment objective. Then, it invests the money in equities, bonds, money market instruments and/or other securities. Each investor owns units, which represent a portion of the holdings of the fund. The income/gains generated from this collective investment is distributed proportionately amongst the investors after deducting certain expenses, by calculating a scheme’s “Net Asset Value" or NAV. Simply put, a Mutual Fund is one of the most viable investment options for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
Types
Various types of Mutual Fund schemes exist to cater to different needs of different people. Largely there are three types of mutual funds.
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Equity or Growth Funds- These invest predominantly in equities i.e. shares of companies - The primary objective is wealth creation or capital appreciation. - They have the potential to generate higher return and are best for long term investments. - Examples would be - “Large Cap” funds which invest predominantly in companies that run large established business - “Mid Cap funds” which invest in mid-sized companies. funds which invest in mid-sized companies. - “Small Cap” funds that invest in small sized companies - “Multi Cap” funds that invest in a mix of large, mid and small sized companies. - “Sector” funds that invest in companies that are related to one type of business. For e.g. Technology funds that invest only in technology companies - “Thematic” funds that invest in a common theme. For e.g. Infrastructure funds that invest in companies that will benefit from the growth in the infrastructure segment - Tax-Saving Funds.
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Income or Bond or Fixed Income FundsYes! To add a picture follow these simple steps: Enter App Settings Click the "Manage Questions" button Click on the question you would like to attach a picture to When editing your answer, click on the picture icon and then add an image from your library
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Hybrid FundsYes! Users can add video from YouTube or Vimeo with ease: Enter App Settings Click the "Manage Questions" button Click on the question you would like to attach a video to When editing your answer, click on the video icon and then paste the YouTube or Vimeo video URL That's it! A thumbnail of your video will appear in answer text box
Benefits
Many of us dread the thought of managing our own investments. With a professional fund management company, people are put in charge of various functions based on their education, experience and skills.
As an investor, you can either manage your finances yourself, or hire a professional firm. You opt for the latter when:
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You do not know how to do the job best – many of us hire someone to file our income tax returns, or almost all of us get an architect to do our house.
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You do not have enough time or inclination. It’s like hiring drivers even though we know how to drive.
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When you are likely to save money by outsourcing the job instead of doing it yourself. Like going on a journey driving your own vehicle is far costlier than taking a train.
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You can spend your time for other activities of your choice / liking.
Professional fund management is one of the best benefits of Mutual Funds. The infographic on the left highlights all the others. Given these benefits, there is no reason why one should look at any other investment avenue.
How do I know which Fund is right for me ?
Before you invest, understand your
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Investment Objectives
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Ideal Investment Horizons
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Risk Appetite
Once an investor has decided to invest in Mutual Funds, he has to make a decision of which scheme to invest in– Fixed Income Fund, Equity Fund or Balanced and which Asset Management Company (AMC) to invest with?
Firstly, discuss freely with your Distributor what your objective is, what time period you’re comfortable with, and what your risk appetite is.
Decisions on which fund to invest in would be made based on this information.
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If you have a long-term objective – say, retirement planning, and are willing to assume some risk, then an Equity or Balanced Fund would be ideal.
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If you have a very short-term objective – say, money to be kept aside for a couple of months; a Liquid Fund would be ideal.
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If the idea is to generate regular income, then a Monthly Income Plan or an Income Fund would be recommended.
After deciding on the type of fund to invest in, a decision on the specific scheme from an AMC would have to be made. These decisions are usually made after ascertaining the AMC’s track record, suitability of scheme, portfolio details, etc.
Scheme Factsheets and Key Information Memorandum are two documents that every investor needs to peruse before investing. If one needs detailed information then one should look at Scheme Information Document. All of these are easily accessible at every Mutual Fund’s website.