Mutual Funds

Mutual Funds.

A mutual fund is a common pool of money into which investors place their contributions that are to be invested in different types of securities in accordance with the stated objective . Mutual funds work by pooling money together from many investors. That money then gets used to purchase stocks, bonds and other securities. Because mutual funds invest in a collection of companies, they offer instant diversification (thus lower risk) to investors. Mutual fund investors share in the fund’s profits and losses..

How do Mutual Funds Operate. Delivered to INVESTORS RETURNS Helps generate STOCKS I SECURITIES Pool their money FUND MANAGER Invest in.

Myths about Mutual Funds.

1. Mutual Funds invest only in shares. 2. Mutual Funds are prone to very high risks/actively traded. 3. Mutual Funds are very new in the financial market. 4. Mutual Funds are not reliable and people rarely invest in them. 5. The good thing about Mutual Funds is that you don’t have to pay attention to them..

Facts about Mutual Funds.

1. Equity Instruments like shares are only a part of the securities held by mutual funds. Mutual funds also invest in debt securities which are relatively much safer. 2. Mutual Funds are there in India since 1964. 3. Mutual Funds are the best solution for people who want to manage risks and get good returns..

Structure of Mutual Funds. Execute a Trust Deed Sponsors ¯ T färr% Fuzt¯ Trustees Mutual Fund is a a Trust under Indian Trust A , 1882 Investors Agents/ Distributors Mutual Fund Custodian Bankers 1m •e-stm Dav-ro- at Era tio s Asset Management Company Registrar & Fund Transfer Accountants Agency.

C ategories of Mutual Funds. Equity Funds Fixed-Income Funds Balanced Funds Money Market Funds Income Funds International/Global Funds.

Advantages of Mutual Funds. 1. Liquidity Unless you opt for close-ended mutual funds , it is relatively easier to buy and exit a mutual fund scheme. You can sell your open-ended equity mutual fund units when the stock market is high and make a profit. Do keep an eye on the exit load and expense ratio of the mutual fund. 2. Diversification Equity mutual funds have their share of risks as their performance is based on the stock market movements. Hence, the fund manager spreads your investment across stocks of companies across various industries and different sectors called diversification . 3. Quick and hassle-free process You can start with one mutual fund and slowly diversify across funds to build your portfolio. It is easier to choose from handpicked funds that match your investment objectives and risk tolerance..

Disadvantages of Mutual Funds. 1. Costs of managing the mutual fund The salary of the market analysts and fund manager comes from the investors along with the operational costs of the fund. Total fund management charges are one of the first parameters to consider when choosing a mutual fund. 2. Exit Load You have exit load as fees charged by AMCs when exiting a mutual fund. It discourages investors from redeeming investments for some time 3. Dilution While diversification averages your risks of loss, it can also dilute your profits. Hence, you should not invest in many mutual funds at a time..

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