THINKING ABOUT SAVE AND INVEST? THEN, INVEST IN MUTUAL FUND.
WHAT ARE THE MUTUAL FUNDS?
A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with SEBI before it can collect funds from public.
WHY SHOULD INVEST IN MUTUAL FUNDS?
Mutual funds are a popular choice among investors because they generally offer the following features:
- Professional Management: : Investors avail the services of experienced and skilled professionals who are backed by a dedicated investment research team which analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme
- Diversification: “Don’t put all your eggs in one basket. It reduces the risk because all stock may not move in the same proportion at the same time
- Low Cost: Mutual funds are a relatively less expensive way to invest compared to directly investing in the capital market because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.
- Liquidity: Mutual fund investors can easily redeem their shares at any time, for the current net asset value (NAV) plus any redemption fees.
WHAT ARE THE TYPES OF MUTUAL FUNDS?
RISK INVOLVED IN MUTUAL FUNDS.
- Volatility Risk
- Credit Risk
- Liquidity Risk
- Concentrated Risk
- Inflation Risk
SOME SCHEMES ACCORDING TO INVESTMENT OBJECTIVE.
- Income Oriented Schemes: The funds primarily offer fixed income to investors. The main securities in which investments are made by such funds are the fixed income yielding one like bonds, corporate debenture, Government securities and money market instrument etc.
- Growth Oriented Schemes: These funds offer growth potentialities associated with investment in capital market namely: (i) high source of income by way of dividend and (ii) rapid capital appreciation, both from holding of good quality scrips. These funds, with a view to satisfying the growth needs of investors, primarily concentrate on the low risk and high yielding spectrum of equity scrips of the corporate sector.
- Capital Protection Oriented Scheme: It is a scheme which protects the capital invested in the mutual fund through suitable orientation of is portfolio structure.
- Real Estate Funds: These are close ended mutual funds which invest predominantly in real estate and properties
- Tax Saving Schemes: These schemes offer tax rebates to the investors under tax laws as prescribed from time to time. This is made possible because the Government offer tax incentive for investment in specified avenues. For example, Equity Linked Saving Schemes (ELSS) and pensions schemes.