Mutual Fund is an excellent Investment option for multiplying
your retirement Corpus. Here we are going to discuss what are mutual Fund and
its features.
Now a day’s Mutual
Fund is a popular financial vehicle that pools money from individuals
and institutional investors for common investment objectives. The pooled investments
are professionally managed by the Fund managers. They invest in different
securities such as Stocks, Bonds, and money market instruments that are in line
with investment Mandates. As the Fund managers have in-depth understanding of
markets, so their intention is to provide optimum returns to the investor by
their investment decision. Investors would be allocated the unit-based funds on
the amount they invest.
Objectives:-
Each Mutual Fund has a different investment objective,
which is set by Fund Manager before launching the scheme in the market.
Based on this objective, the Fund Manager selects
financial securities for the fund. Thus, sets its return and risk expectation.
If Fund’s objective is income generation, then Fund
Manager would invest most of the money in Debt and Liquid instruments. Because
they are less risky and give inflation-adjusted returns. Whereas if the fund
objective is wealth creation, then the fund manager would invest most of the money
in Equity & Equity Related instruments. Because they are riskier, have the potential to beat inflation through returns.
Mutual funds are broadly divided on the basis of categorization. Which are as follows:-
·
Based on the Structure of Mutual Fund
Ø
Open
Ended fund:-Investor can buy & sell funds at any time.
Ø
Close
Ended Funds:-Investor can buy the fund once during the Offer period.
·
Based on Asset Class of Mutual Fund
Ø
Equity
Fund:-Invest mainly in stocks. So also known as Stock
Fund.
Ø
Debt
fund: - Principally invest in fixed
income securities like bonds and treasury bills etc.
Ø
Gold
Fund: - The type of mutual funds that
directly or indirectly invest in gold reserves.
·
Based on the Risk-Return profile of
Mutual Fund
Ø
Equity
Funds:-These funds invest in Equity & equity related
Instruments. Such funds are so volatile in performance but in the long run, it
will return good capital appreciation.
Ø
Balanced
Funds:-These funds include equity and debt both.
Ø
Debt Funds
·
Based on Market capitalization in Equity
fund.
Ø
Large-cap:- Top 100 companies in
terms of market capitalization are considering large-cap companies.
Ø
Mid-cap:-Next 101st-
250th companies in term of market capitalization are considering mid-cap
companies.
Ø
Small-Cap:- 251st company onwards in
terms of market capitalization are considering small-cap companies.
In a simple way, we can conclude what is mutual fund is
Ø
Investing in Mutual Funds is generally
much easier than buying or selling financial securities like stocks, bonds or
money market instruments.
Ø
Mutual funds are operated by
professional ‘fund managers’. They invest the fund’s capital in various financial
securities according to scheme objectives. Thus, attempting to generate capital
gains and income for the fund’s investors. These Fund Managers are highly
qualified individuals who invest your money based on huge backend research and
analysis.
Ø
All funds should be registered with
the Securities and Exchange Board of India (SEBI). SEBI regulates
securities markets before it can collect funds from the investor.
Ø
Each investor owns units, which
represent the percentage of the holdings of the fund. The income/gains generated
from this collective investment which is distributed amongst the investors
after deducting certain expenses, by calculating a scheme’s “Net Asset Value or
NAV”.
Ø
Simply put, it is one of the most
viable investment options for the common man. Since it offers an option to invest
in a diversified and well-managed basket of securities at a comparatively low
cost.
