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Mutual Funds

Investor Login 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. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciation realized by the scheme are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. The small savings of all the investors are put together to increase the buying power and hire a professional manager to invest and monitor the money. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy.

Types of Mutual Fund Scheme

There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectations. Whether as the foundation of your investment programme or as a supplement, Mutual Fund schemes can help you meet your financial goals.

Growth Schemes
Aim to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short- term decline in value for possible future appreciation.

Income Schemes
Aim to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.

Balanced Schemes
Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both shares and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls.

Money Market Schemes
Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter- bank call money.
Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market.

Other Schemes

Mutual fund schemes may be classified on the basis of its structure and its investment objective

  • Tax Saving Schemes
  • Special Schemes

Benefits of Investing in Mutual Funds

Benefits of mutual fund investing are liquidity, affordability, diversification, convenience and professional management. Mutual fund investment provides liquidity. Investors can sell their mutual fund units on any business day and receive current market value on their investments.

How to invest in Mutual Fund

Investment done in mutual fund is known as mutual fund investing. Mutual funds investing require a vision for the market that encompasses many contingency plans.

There are generally four types of mutual fund investing:

  • Step One Identify your Investment needs
  • Step Two Choose the right Mutual Fund
  • Step Three Select the ideal mix of Schemes
  • Step Four Invest regularly
  • Step Five Start early
  • Step Six The final step

Rights of a Mutual Fund Unitholder

A unit holder in a Mutual Fund scheme governed by the SEBI (Mutual Funds) Regulations, is entitled to some rights.

Mutual Funds - A Globally Proven Investment

All investments whether in shares, debentures or deposits involve risk. Share value may go down depending upon the performance of the company, the industry, state of capital markets and the economy. Generally however, longer the term, lesser the risk. Companies may default in payment of interest and principal on their debentures/bonds/deposits. While risk cannot be eliminated, skillful management can minimize risk. Mutual Funds help to reduce risk through diversification and professional management. The experience and expertise of Mutual Fund managers in selecting fundamentally sound securities and timing their purchases and sales help them to build a diversified portfolio that minimizes risk and maximizes returns.

Worldwide, the Mutual Fund, or Unit Trust as it is called in some parts of the world, have almost overtaken bank deposits and total assets of insurance funds. As of date, in the US alone there are over 5,000 Mutual Funds with total assets of over US $ 3 trillion (Rs.l00 lakh crores). In India there are 38 Mutual Funds and over 300 schemes with total assets of approximately Rs. 100,000 crores. All mutual funds in India are regulated by the Securities and Exchange Board of India (SEBI)

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