Mutual fund

“I made my first investment at age eleven. I was wasting my life until then.”

— Warren Buffett

All about mutual funds

What is mutual funds

A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal and investments may be in shares, debt securities, money-market securities or a combination of these. Those securities are professionally managed on behalf of the unit holders and each investor holds a pro-rata share of the portfolio, that is, entitled to profits as well as losses.
Income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. A mutual fund is the most suitable investment scope for common people as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively lower cost.

Regulations in India

To protect the interest of investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. Mutual funds, either promoted by public or by private sector entities including one promoted by foreign entities, are governed by these regulations.

Advantages of Mutual Funds

Professional Management

Mutual funds employ experienced and skilled professionals who make investment research and analyze the performance and prospects of various instruments before selecting a particular investment. Thus, by investing in mutual funds, one can avail the services of professional fund managers, which would otherwise be costly for an individual investor.

Diversification

Diversification involves holding a wide variety of investments in a portfolio so as to mitigate risks. Mutual funds usually spread investments across various industries and asset classes, constrained only by the stated investment objective. Thus, by investing in mutual funds, one can avail the benefits of diversification and asset allocation without investing a large amount of money that would be required to create an individual portfolio.

Liquidity

In an open-ended scheme, unit holders can redeem their units from the fund house anytime. Even with close-ended schemes, one can sell the units on a stock exchange at the prevailing market price. Besides, some close-ended and interval schemes allow direct repurchase of units at NAV related prices from time to time. Thus investors do not have to worry about finding buyers for their investments.

Flexibility

Mutual funds offer a variety of plans, such as regular investment, regular withdrawal and dividend reinvestment plans. Depending upon one’s preferences and convenience, one can invest or withdraw funds, accordingly.

Cost Effective

Since Mutual funds have a number of investors, the fund’s transaction costs, commissions and other fees get reduced to a considerable extent. Thus, owing to the benefits of larger scale, mutual funds are comparatively less expensive than direct investment in the capital markets.

Well Regulated

Mutual funds in India are regulated and monitored by the Securities and Exchange Board of India (SEBI), which strives to protect the interests of investors. Mutual funds are required to provide investors with regular information about their investments, in addition to other disclosures like specific investments made by the scheme and the proportion of investment in each asset classes.

Convenient Administration

The facility of making investments through service centers as well as through internet ensures convenience.

Return Potential

By allocating right asset mix, mutual funds offer a chance of higher potential of returns. The high concentration of risky assets would lead to higher return and vice-versa.

Transparency

Information available through fact sheets, offer documents, annual reports and promotional materials help investors gather knowledge about their investments.

Still Thinking ?

Your one small step to the financial investment will be giant leap in your financial growth and stability.