HomeIntroduction:
Mutual is a type of investment vehicle where investors pool their resources in order to participate in a portfolio of securities. Portfolio is the combination of various assets. Investing directly in stock market is risky and requires professional knowledge for managing equity investments. But in case of mutual fund reduces many inconveniences. The investors don't actually own each security but instead, he owns shares of the mutual fund. The main benefit of a mutual fund is that it provides a way for the investor to achieve diversification in his investments without having to invest.
Investment in mutual fund offers you multi benefits and reduces time and cost consuming effort. You may me wondering what the reason for selecting a mutual fund is. It is simple; mutual funds offer six large benefits over owning the stocks individually. Those benefits are diversification, professional fund management, hedge against inflation, capital growth, liquidity and leverage for risk reduction through Systematic Investment Plan (SIP). To avail these benefits, the investors need not invest much more, just Rs. 5000 or even some mutual fund companies' offers below Rs. 1000.
Diversification is the efficient allocation of funds in various assets, it helps to reduce or minimize the risk. We this effort, the investors can reduce financial risk and business risk. By owing shares of multiple companies, the fund value is not devastated if an individual company has attained poor performance. Selecting securities, the allocation of cash in securities, and timing of purchase done by the fund manager. The fund manger has the training, time and the resources to make the best informed investment decisions.
The professional fund management employs the active strategy to preserve fund in market place. This eliminates the investor anxiety in selecting equity. If the market performance is fine, the yield for the MF investor is abundance. The investors are allowed to enter and exit any during the fund life if the fund is open-ended in nature. The recent day development in systematic investment route fetches much attention of the MF as well as all investors. It derives the advantage both in the uptrend and downtrend of the market movement. In down trend there is more in the form of units, while in uptrend more is the profit.
Some mutual fund providers now offer their schemes with insurance cover also. This is the real growth in the mutual fund sector. It attracts the eyes of all segments.
Mutual funds collect the funds from the investor and invest the same in securities and converted in units. Initially each unit priced at Rs. 10 and invested in market. The growing fund in the market is called as Net Asset Value (NAV). NAV is the market value of the securities held by the scheme. Since the price of the security is varies the NAV also vary. The net asset value per unit is the market value of securities held divided by the total number of the units outstanding.
Classification
On the basis of the maturity period, a mutual fund scheme can be classified into open-ended scheme or close-ended scheme. An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. The key feature of open ended scheme is liquidity.
A close-ended fund or scheme has a stipulated maturity period. This fund is open for subscription only for a specific period at the time of launch. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy/sell the units of the scheme on the stock exchanges where the units are listed.
On the basis of investment objective, a scheme can be classified as growth scheme, income scheme and balanced scheme. The aim of growth funds is to provide capital appreciation over the medium to long-term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend options, capital appreciation, etc. and the investors may choose an option depending on their preferences.
The income fund provides regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, government securities and money market instruments. Thirdly balanced funds provide both growth and regular income. Apart from this money market funds provide easy liquidity, preservation of capital and moderate income. Some mutual fund companies' floats NFOs on a particular sector or on concentrating a particular benchmark index of a stock exchange.
