Mutual Fund

Mutual Fund

  • What is mutual Fund ?
  • Mutual funds are investment vehicles that consist of the of the capital of different investors who have a shared mutual financial goal.
  • A fund manager takes care of the money that is collected by different investors and invests that sum of money in different things like share, bond and company stocks.
  • Security and Exchange Board of India regulates the mutual funds in India.
  • Mutual fund investment is the best way to augment your wealth.
  • In mutual fund direct you do not require to pay any commission.
  • You can perform the mutual fund value research online from a lot of websites.
  • Some companies also offer mutual fund for short term.

There are various types of mutual fund schemes available in the market:

On the basis of asset class:

  • Debt fund:
  1. These funds invest in fixed income instruments such as bonds, security and treasury bills such as fixed maturity plans, liquid funds, gilt funds, short term plans, long term bonds, etc.
  2. They have a fixed maturity date and a fixed rate of interest.
  3. They are the best investment options for investors who get income on a regular basis.
  • Hybrid or Balanced Funds:
  1. They are a combination of bonds and stocks.
  2. They can either have a fixed or a variable ratio.
  3. These funds invest some amount of money in equity funds and some in the debt funds.
  4. The investment in hybrid or balanced fund is a bit risky but the returns are quite good.
  • Equity Funds:
  1. They are the most common types of mutual funds.
  2. The investments in equity funds are made in stocks.
  3. The gains or losses of these types of funds are dependent on the shares in which they are invested.
  4. A lot of investors prefer equity funds because these funds offer quick growth.
  • Money Market Fund:
  1. A lot of people invest money in money market which is known as the cash market or the capital market.
  2. They are run by banks, corporations and the government.
  3. The fund manager collects the money from various investors and puts them into these securities and offers regular mutual fund dividends in return.
  4. These entities issue money market instruments such as dated-securities, T-bills, certificate of deposits, etc.

On the basis of structure:

  • Closed-ended mutual funds:
  1. The investment in closed ended mutual funds is fixed and that is the reason more than the predetermined number of units cannot be sold.
  2. There are some funds which are available with New Fund Offer period.
  3. In these cases the investors are expected to buy the units before the set deadline.
  4. The maturity tenure of the scheme is fixed and when you exit the scheme the investors have to either list their holdings on stock exchanges or purchase them again.
  • Open-ended Mutual Funds:
  1. Open ended Mutual Funds do not have any limits like time period or the number of units that can be purchased.
  2. Investors can trade their funds whenever they want to.
  3. They can also exit their funds whenever they want.
  4. Changes occur in unit capital whenever they want.
  • Interval funds:
  • They have the characteristics of both open-ended as well as closed-ended funds.
  • These types of funds can be bought or exited at only certain intervals of time that is to be determined by the fund house.
  • They are open for investment only for some period of time after which the investors cannot put back heir money into it.
  • These funds require the investors to invest for a period of two year. 

On the basis of investment objectives:

  • Growth funds:
  1. These funds invest a large part into growth sectors and shares which makes them the ideal investment option for those people who have extra funds and want to invest in riskier schemes.
  2. The return offered is very high.
  3. The risk involved is also pretty high.
  • Tax saving funds:
  1. These funds are becoming very popular these days as they offer dual benefits.
  2. These funds help to create wealth and save on taxes and come with a three year lock in period.
  3. They make investments in equity and equity related instruments.
  4. They are the ideal choice for salaried individuals who want to get long term returns.
  • Fixed Maturity Funds:
  1. They make investments in security, bonds and money markets.
  2. They have fixed maturity periods.
  3. The tenure can range from a month to five years.
  • Capital protected funds:
  1. These are the funds which prioritize the protection of the capital of the investors.
  2. The returns from these funds are very low.
  3. A major part of these funds is invested in debt securities and equities.
  4. They do not incur any type of losses.
  5. The investors must invest for at least three years to ensure that their capital is safe and eligible for all the tax benefits.
  • Liquid funds:
  1. They make investments in debt securities and money market.
  2. The tenure of these funds is 91 days.
  3. The maximum amount that can be invested is around 10 lakhs.
  • Aggressive Growth Funds:
  1. They have a high level of risk and are made to generate steep monetary returns.
  2. These types of funds are prone to market volatility and are prone to deliver impressive returns.
  • Income funds:
  1. They are like debt funds and they are invested in a combination of securities, certificate of deposits, bonds, etc.
  2. These types of funds are profitable for those people who want to take risks.
  3. The returns are available after two to three years.
  4. They give higher returns than those offered by deposits.
  • Pension funds:
  1. They are the best funds for those who want to save money for retirement.
  2. They offer regular income are the best option for meeting expenses like medical emergencies or a child’s wedding.

On the basis of risk profile:

  1. Medium risk funds
  2. Low risk funds
  3. Very low risk funds
  4. High risk funds
  • Specialized Mutual Funds:
  1. Exchange traded funds
  2. Asset allocation funds
  3. Market Neutral Funds
  4. Gift funds
  5. Emerging market funds
  6. Real estate funds
  7. Global funds
  8. Market Neutral Funds
  9. Sector funds
  10. Index funds
  11. Funds of funds
  12. Foreign or international funds
  • Low expenses and fee
  • Consistent performance
  • Strategic investment
  • Flexibility
  • Diversification
  • Liquidity
  • Availability of many choices
  • Efficient taxes
  • Easy trade and transaction
  • Expert management
  • Residents of India who should be above the age of 18.
  • NRIs and PIOs who live in abroad on a full repatriation basis.
  • Parents or guardians on behalf of minors.
  • Partnership firms
  • Scientific and industrial research organizations
  • Qualified Foreign InvestorInternational multilateral agencies approved by the Government of India
  • Identify your financial goals before you apply for a mutual fund in India.
  • Approach an experienced fund adviser
  • Keep all the documents ready before applying for a mutual fund.
  • Consider the risk factor of the mutual fund before applying for one.
  • When you choose a scheme and the options under it make sure that you consider your financial objectives to get the most from your investment.
  • Consider your age before you apply for a mutual fund.
  • Assess the past performance of the funds before you apply for one.
  • Entry Load:
  1. This is a fee charged by a fund house to an investor when he or she buys some units of the mutual funds.
  • Exit Load:
  1. This is charged by an investor when he or she redeems the units of the mutual funds.
  2. They are not fixed types of loans and can differ according to the scheme.
  3. This fee is determined by the fund house.
  • Switch Fee
  1. This fee is charged when an investor switch from one scheme to the other.
  • Management Fees
  1. They are collected from investors to pay off the fund managers for the services they perform to manage the scheme.
  • Account Fees:
  1. This fee is charged when the investors fail to meet the minimum balance requirement.
  • Services Fees and Distribution Fees

This fee is charged for printing, mailing and marketing expenses.

The modes of investment of mutual funds are:

  • Online: It is one of the most preferred ways of applying for a mutual fund.
  • Agents: Professional agents can be hired for applying for mutual funds.
  • Direct investment: Investors can apply on their own by contacting mutual fund companies and applying on their own.
  • Growth funds are necessary for the growth. The objective of all growth funds is the same that is to achieve capital appreciation between medium and long term.
  • The objective of value funds is to make investments in undervalued stocks and achieve profits when inefficiencies are corrected.
  • The income funds aim at generating incomes at regular intervals of time.
  • Top-down approach: In this approach the big economic picture is taken into consideration and the countries and companies that are forecast to perform well in the future are found.
  • Bottom-up approach: It chooses the stocks of companies that perform well irrespective of the prospects of the economy or industry under which the company falls.
  • Technical analysis: It studies the past market data in order to predict the direction of investment prices.
  • Combination of top-down and bottom-up approach: It combines the most common approaches of investing in a mutual fund.
  • Broker: A broker is a middle man or a firm who is involved for in the business of secured transactions. They work for earning commission.
  • Trustee: This person sees the operations and management of the mutual funds.
  • Liquidity: It is the availability of an investment to gain instant access to the money that is invested.
  • Redemption: It refers to the resale of the units of a fund back to the fund house.
  • Total Net Asset: It is the overall amount of assets minus the liabilities.
  • Bonds: They are debt instruments issued by the government, government agencies, companies or municipalities.
  • Bench Mark: It refers to the standard of performance against which the performance of the mutual fund is measured.
  • Fund Manager: They handle the funds and invest in the securities to generate returns.
  • Government bond: These are the debt securities issued by the government or their agents.
  • Equity: They are investments or securities that represent ownership in a firm or company
  • Asset class: They refer to group of investments or securities that are similar.
  • Fund units or shares: The investors of a mutual fund make investments by buying the units or shares of a fund in which they want to invest.
  • Expense ratio: It is the total expense incurred by the fund when compared to the total assets that it acquires.
  • Holding period: This is the duration or period for which an investor holds an asset.
  • Portfolio turnover ratio: It is the rate levied on the change of the mutual fund portfolio every year.
  • Mutual fund distributor: A mutual fund distributor is a person who helps in the selling and buying of units of mutual funds by investors.

The mutual fund benefits include:

  • Safety
  • Mutual fund taxation facilities
  • Easy investment process
  • Low cost for bulk purchases
  • Diversification
  • Liquidity
  • Managed by experts
  • Systematic investment plans
  • Automated payments
  • Meeting your financial targets
  • What is an Asset Management Company?

It is a highly regulated organization that takes money from investors and then invests them in a portfolio.

  • What are different types of mutual funds?

The different types of mutual funds are:

  1. Diversified funds
  2. Index funds
  3. Sector funds
  4. Tax saving funds
  5. Liquid funds
  6. Debt or income funds
  7. Hedge funds
  8. Balance funds
  9. Gift funds
  • What is NAV?

NAV stands for Net Asset Value and it is the cumulative market value of the assets of the fund net of its liabilities.

  • How often is NAV declared?

NAV is required to be declared on a regular basis.

  • What is KYC in mutual funds?

KYC in mutual funds is Know Your Customer which is used for the customer identification process.

  • What is NFO in mutual fund?

NFO in mutual fund stands for new fund offer which is the first subscription offering for any new fund.

  • What is mutual fund rating crisil?

CMFR stands for CRISIL mutual fund ranking which covers various categories across equity, debt and hybrid asset classes.

  • Which is better between mutual funds and ULIP?

In the competition of mutual funds vs ULIP the latter has an added advantage as it offers a life cover.

  • Which are the topmost mutual fund companies?

The topmost three mutual fund companies are as follows:

  1. ICICI Prudential Equity and Debt Fund
  2. L & T Tax Advantage Fund
  3. L & T India Value Fund
  • What is mutual fund policy bazaar?

Policy bazaar is an online platform to invest different funds through their website.

Mutual Fund

Quick Links

Cards

Investments

Mutual Fund

  • What is Mutual Fund?
  • Mutual funds are investment vehicles that consist of the of the capital of different investors who have a shared mutual financial goal.
  • A fund manager takes care of the money that is collected by different investors and invests that sum of money in different things like share, bond and company stocks.
  • Security and Exchange Board of India regulates the mutual funds in India.
  • Mutual fund investment is the best way to augment your wealth.
  • In mutual fund direct you do not require to pay any commission.
  • You can perform the mutual fund value research online from a lot of websites.
  • Some companies also offer mutual fund for short term.

There are various types of mutual fund schemes available in the market:

On the basis of asset class:

  • Debt fund:
  1. These funds invest in fixed income instruments such as bonds, security and treasury bills such as fixed maturity plans, liquid funds, gilt funds, short term plans, long term bonds, etc.
  2. They have a fixed maturity date and a fixed rate of interest.
  3. They are the best investment options for investors who get income on a regular basis.
  • Hybrid or Balanced Funds:
  1. They are a combination of bonds and stocks.
  2. They can either have a fixed or a variable ratio.
  3. These funds invest some amount of money in equity funds and some in the debt funds.
  4. The investment in hybrid or balanced fund is a bit risky but the returns are quite good.
  • Equity Funds:
  1. They are the most common types of mutual funds.
  2. The investments in equity funds are made in stocks.
  3. The gains or losses of these types of funds are dependent on the shares in which they are invested.
  4. A lot of investors prefer equity funds because these funds offer quick growth.
  • Money Market Fund:
  1. A lot of people invest money in money market which is known as the cash market or the capital market.
  2. They are run by banks, corporations and the government.
  3. The fund manager collects the money from various investors and puts them into these securities and offers regular mutual fund dividends in return.
  4. These entities issue money market instruments such as dated-securities, T-bills, certificate of deposits, etc.

On the basis of structure:

  • Closed-ended mutual funds:
  1. The investment in closed ended mutual funds is fixed and that is the reason more than the predetermined number of units cannot be sold.
  2. There are some funds which are available with New Fund Offer period.
  3. In these cases the investors are expected to buy the units before the set deadline.
  4. The maturity tenure of the scheme is fixed and when you exit the scheme the investors have to either list their holdings on stock exchanges or purchase them again.
  • Open-ended Mutual Funds:
  1. Open ended Mutual Funds do not have any limits like time period or the number of units that can be purchased.
  2. Investors can trade their funds whenever they want to.
  3. They can also exit their funds whenever they want.
  4. Changes occur in unit capital whenever they want.
  • Interval funds:
  • They have the characteristics of both open-ended as well as closed-ended funds.
  • These types of funds can be bought or exited at only certain intervals of time that is to be determined by the fund house.
  • They are open for investment only for some period of time after which the investors cannot put back heir money into it.
  • These funds require the investors to invest for a period of two year. 

On the basis of investment objectives:

  • Growth funds:
  1. These funds invest a large part into growth sectors and shares which makes them the ideal investment option for those people who have extra funds and want to invest in riskier schemes.
  2. The return offered is very high.
  3. The risk involved is also pretty high.
  • Tax saving funds:
  1. These funds are becoming very popular these days as they offer dual benefits.
  2. These funds help to create wealth and save on taxes and come with a three year lock in period.
  3. They make investments in equity and equity related instruments.
  4. They are the ideal choice for salaried individuals who want to get long term returns.
  • Fixed Maturity Funds:
  1. They make investments in security, bonds and money markets.
  2. They have fixed maturity periods.
  3. The tenure can range from a month to five years.
  • Capital protected funds:
  1. These are the funds which prioritize the protection of the capital of the investors.
  2. The returns from these funds are very low.
  3. A major part of these funds is invested in debt securities and equities.
  4. They do not incur any type of losses.
  5. The investors must invest for at least three years to ensure that their capital is safe and eligible for all the tax benefits.
  • Liquid funds:
  1. They make investments in debt securities and money market.
  2. The tenure of these funds is 91 days.
  3. The maximum amount that can be invested is around 10 lakhs.
  • Aggressive Growth Funds:
  1. They have a high level of risk and are made to generate steep monetary returns.
  2. These types of funds are prone to market volatility and are prone to deliver impressive returns.
  • Income funds:
  1. They are like debt funds and they are invested in a combination of securities, certificate of deposits, bonds, etc.
  2. These types of funds are profitable for those people who want to take risks.
  3. The returns are available after two to three years.
  4. They give higher returns than those offered by deposits.
  • Pension funds:
  1. They are the best funds for those who want to save money for retirement.
  2. They offer regular income are the best option for meeting expenses like medical emergencies or a child’s wedding.

On the basis of risk profile:

  1. Medium risk funds
  2. Low risk funds
  3. Very low risk funds
  4. High risk funds
  • Specialized Mutual Funds:
  1. Exchange traded funds
  2. Asset allocation funds
  3. Market Neutral Funds
  4. Gift funds
  5. Emerging market funds
  6. Real estate funds
  7. Global funds
  8. Market Neutral Funds
  9. Sector funds
  10. Index funds
  11. Funds of funds
  12. Foreign or international funds
  • Low expenses and fee
  • Consistent performance
  • Strategic investment
  • Flexibility
  • Diversification
  • Liquidity
  • Availability of many choices
  • Efficient taxes
  • Easy trade and transaction
  • Expert management
  • Residents of India who should be above the age of 18.
  • NRIs and PIOs who live in abroad on a full repatriation basis.
  • Parents or guardians on behalf of minors.
  • Partnership firms
  • Scientific and industrial research organizations
  • Qualified Foreign Investors
  • International multilateral agencies approved by the Government of India
  • Identify your financial goals before you apply for a mutual fund in India.
  • Approach an experienced fund advisor
  • Keep all the documents ready before applying for a mutual fund.
  • Consider the risk factor of the mutual fund before applying for one.
  • When you choose a scheme and the options under it make sure that you consider your financial objectives to get the most from your investment.
  • Consider your age before you apply for a mutual fund.
  • Assess the past performance of the funds before you apply for one.
  • Entry Load:
  1. This is a fee charged by a fund house to an investor when he or she buys some units of the mutual funds.
  • Exit Load:
  1. This is charged by an investor when he or she redeems the units of the mutual funds.
  2. They are not fixed types of loans and can differ according to the scheme.
  3. This fee is determined by the fund house.
  • Switch Fee
  1. This fee is charged when an investor switch from one scheme to the other.
  • Management Fees
  1. They are collected from investors to pay off the fund managers for the services they perform to manage the scheme.
  • Account Fees:
  1. This fee is charged when the investors fail to meet the minimum balance requirement.
  • Services Fees and Distribution Fees

This fee is charged for printing, mailing and marketing expenses.

The modes of investment of mutual funds are:

  • Online: It is one of the most preferred ways of applying for a mutual fund.
  • Agents: Professional agents can be hired for applying for mutual funds.
  • Direct investment: Investors can apply on their own by contacting mutual fund companies and applying on their own.
  • Growth funds are necessary for the growth. The objective of all growth funds is the same that is to achieve capital appreciation between medium and long term.
  • The objective of value funds is to make investments in undervalued stocks and achieve profits when inefficiencies are corrected.
  • The income funds aim at generating incomes at regular intervals of time.
  • Top-down approach: In this approach the big economic picture is taken into consideration and the countries and companies that are forecast to perform well in the future are found.
  • Bottom-up approach: It chooses the stocks of companies that perform well irrespective of the prospects of the economy or industry under which the company falls.
  • Technical analysis: It studies the past market data in order to predict the direction of investment prices.
  • Combination of top-down and bottom-up approach: It combines the most common approaches of investing in a mutual fund.
  • Broker: A broker is a middle man or a firm who is involved for in the business of secured transactions. They work for earning commission.
  • Trustee: This person sees the operations and management of the mutual funds.
  • Liquidity: It is the availability of an investment to gain instant access to the money that is invested.
  • Redemption: It refers to the resale of the units of a fund back to the fund house.
  • Total Net Asset: It is the overall amount of assets minus the liabilities.
  • Bonds: They are debt instruments issued by the government, government agencies, companies or municipalities.
  • Bench Mark: It refers to the standard of performance against which the performance of the mutual fund is measured.
  • Fund Manager: They handle the funds and invest in the securities to generate returns.
  • Government bond: These are the debt securities issued by the government or their agents.
  • Equity: They are investments or securities that represent ownership in a firm or company
  • Asset class: They refer to group of investments or securities that are similar.
  • Fund units or shares: The investors of a mutual fund make investments by buying the units or shares of a fund in which they want to invest.
  • Expense ratio: It is the total expense incurred by the fund when compared to the total assets that it acquires.
  • Holding period: This is the duration or period for which an investor holds an asset.
  • Portfolio turnover ratio: It is the rate levied on the change of the mutual fund portfolio every year.
  • Mutual fund distributor: A mutual fund distributor is a person who helps in the selling and buying of units of mutual funds by investors.

The mutual fund benefits include:

  • Safety
  • Mutual fund taxation facilities
  • Easy investment process
  • Low cost for bulk purchases
  • Diversification
  • Liquidity
  • Managed by experts
  • Systematic investment plans
  • Automated payments
  • Meeting your financial targets
  • What is an Asset Management Company?

It is a highly regulated organization that takes money from investors and then invests them in a portfolio.

  • What are different types of mutual funds?

The different types of mutual funds are:

  1. Diversified funds
  2. Index funds
  3. Sector funds
  4. Tax saving funds
  5. Liquid funds
  6. Debt or income funds
  7. Hedge funds
  8. Balance funds
  9. Gift funds
  • What is NAV?

NAV stands for Net Asset Value and it is the cumulative market value of the assets of the fund net of its liabilities.

  • How often is NAV declared?

NAV is required to be declared on a regular basis.

  • What is KYC in mutual funds?

KYC in mutual funds is Know Your Customer which is used for the customer identification process.

  • What is NFO in mutual fund?

NFO in mutual fund stands for new fund offer which is the first subscription offering for any new fund.

  • What is mutual fund rating crisil?

CMFR stands for CRISIL mutual fund ranking which covers various categories across equity, debt and hybrid asset classes.

  • Which is better between mutual funds and ULIP?

In the competition of mutual funds vs ULIP the latter has an added advantage as it offers a life cover.

  • Which are the topmost mutual fund companies?

The topmost three mutual fund companies are as follows:

  1. ICICI Prudential Equity and Debt Fund
  2. L & T Tax Advantage Fund
  3. L & T India Value Fund
  • What is mutual fund policy bazaar?

Policy bazaar is an online platform to invest different funds through their website.

Mutual Fund

Quick Links

Cards

Investments