L.MUTUAL FUNDS

We would have indented to buy an essential material (a long desire) for our Family. So that we may be saving money routinely. While approaching the shop for the desired material, we ought to buy, its cost may have been raised substantially. If we would have invested our money in a Mutual fund scheme which produces a growth rather than the Price hike we may be able to purchase the desired material.  

Today beating the Inflation stock market investment growth stands first. But it needs an in-depth knowledge, sufficient money, sufficient time, etc. But many of us were not availed with those credentials.  

At this stage equivalent to stock market, or even more growth can be obtained from mutual fund scheme only.  

WHAT IS A MUTUAL FUND ? 
A mutual fund is a type of professionally-managed collective investment scheme / investment trust that pools ( a small expanse of still water) money collected from several lakhs of investors, having a common financial goal to purchase securities, being split and invested in several splendid schemes, the gains procured need be shared and offered for the investors is called Mutual Fund. The main aim is to share the gain mutually.  

They can also be termed as investment vehicles that invest the collected money in various
cap­i­tal mar­ket instru­ments like many different types of stocks, deben­tures and other 
secu­ri­ties,bonds or a combination of the above.

While there is no legal definition of mutual fund, the term is most commonly applied only to those collective investment schemes that are regulated, available to the general public and open-ended in nature. Hedge funds are not considered as a type of mutual fund.

Basic ter­mi­nol­ogy of a Mutual Fund :-

NAV – NET ASSET VALUE

Net Asset Value is the mar­ket value of the assets of the scheme minus its lia­bil­i­ties. It is the net asset value of the scheme divided by the num­ber of units outstanding.

While N.F.O ( New Fund Offer ) units value will be Rs.10 /-. Being this value, after the performance of the scheme may increase or decrease. That value may be called as N.A.V.( Net Asset Value ).

Apart from investing in N.F.O, previously functioning Mutual funds can also be invested. While doing so the invested amount, the ( moment ) present N.A.V will be divided and Units Allotted.   

REDEMPTION PRICE

It is the price at which open-ended schemes repur­chase their units and close-ended schemes redeem their units on maturity.

Mutual Funds are sim­i­lar to invest­ing in the stock mar­ket. Mutual Fund com­pa­nies invest in the stock mar­ket on behalf on will­ing investors. Although Mutual Funds are sub­ject to mar­ket risks, the returns are weighty

Mutual funds are classified by their principal investments. The four largest categories of funds are

(i)      money market funds,

(ii)      bond or fixed income funds,

(iii)     stock or equity funds and

(iv)     hybrid funds.

Funds may also be categorized as index or actively-managed.

Investors in a mutual fund pay the fund’s expenses. There is controversy about the level of these expenses. A single mutual fund may give investors a choice of different combinations of expenses by offering several different types of share classes.

No matter what type of investor you are, there is bound to be a mutual fund that fits your style. The point of investing in mutual funds is that they can be less risky than investing in single stocks or bonds and are easier to invest in.

It's important to understand that each mutual fund has different risks and rewards. In general, the higher the potential return, the higher the risk of loss. Although some funds are less risky than others, all funds have some level of risk - it's never possible to diversify away all risk. This is a fact for all investments.

The income earned through these invest­ments is shared with all the investors. It is con­sid­ered as the most suit­able invest­ment for the com­mon man as it offers both diver­sity and liq­uid­ity at a lower cost along with pro­fes­sional management.

Many Excellent Fund Managers are present to effectively Diagnose and invest in Stocks, Debt instruments, money market etc depending upon the nature of scheme. For the past five years except in 2008 “ Equity Diversified Plan ” has produced a rapid growth beating the sensex.   

MUTUAL FUNDS OUTSIDE U.S :                                                                                                 

The term mutual fund is less widely used outside of the United States. For collective 
investment schemes outside of the United States, see articles on specific types of funds including open-ended investment companies, SICAV’s ( an open-ended collective investment scheme common in Western Europe ), unitized insurance funds, unit trusts and Undertakings for Collective Investment in Transferable Securities.

In the United States, mutual funds must be registered with the Securities and Exchange Commission, overseen by a board of directors or board of trustees and managed by a registered investment advisor. They are not taxed on their income if they comply with certain requirements.

Mutual funds have both advantages and disadvantages when compared to direct investing in individual securities. They have a long history in the United States. Today they play an important role in household finances.

WHEN MUTUAL FUND WAS FIRST INTRODUCED IN INDIA ?

The first Mutual Fund company named U.T.I was formed according to the Parliament Act in 1963. Next year in 1964, the first plan was introduced. In 1987, due to the entering of Pubic sector banks in this sector, Mutual Fund sector has started its next step. 

MUTUAL FUND SCHEMES PRESENT IN INDIA ! ( AS ON 10.04.2011)

OPEN-ENDED FUND           712, 

CLOSED ENDED FUND      302,

INTERVAL FUND                  37,

Totaling to 1,051 mutual funds are available in India. According to the last count there are more than 10,000 mutual funds in North America! That means there are more mutual funds than stocks.

ARRIVAL OF SEBI

For the Regulations of Mutual funds sector, Organization SEBI was formed in 1993. Only in this year, Private as well as Foreign Institutions were allowed to enter Mutual funds sector. So, that private based Mutual fund Organization “Kothari Pioneer” was Established. Next year Foreign Organization “Morgan Stanley”, by issuing its first fund entered India’s Mutual fund sector. By SEBI’s Rules and Regulations coming into practice in 1996, investors were secured. Due to those small investors, increased considerably. 

ENTRY CHARGES CANCELLATION

Due to the crash of the Stock Market in 2008, created a benefit for the investors those directly invested in Mutual funds, instead of, by Agents. After that for Equity based funds also Entry charges were cancelled.

Due to the above reasons investors were mostly benefited. For secured deposit “An Excellent Mode” may be mutual fund largely felt by the investors, driving to a growth route. 

KYC ( KNOW YOUR CUSTOMER )

The Investors of Mutual fund must fill up the KYC, new Application form. It may be available from the Internet and Downloaded. After duly filling up the form PAN Card and Ration  Card Xerox copies, must be given to the Mutual fund Branch or some other financial services, where investments are made. After that, can be invested in funds.

Inclusive with PAN Card, Mutual funds branch or else by contacting Mutual fund  agents, investments can be started. Investment amount must be given as Cheque / D.D only.       

EVEN RS.100 / - IS ENOUGH

Even common people to start with Mutual fund Rs. 100 / - is allotted as Initial Investment Amount by several Mutual funds Organizations.

ALLOTMENT OF UNITS

Any fund Organizations for the first time introducing a plan may be called as N.F.O.  ( New Fund Offer ) Generally to invest in N.F.O’s, the minimum amount may be Rs. 5000 / -. Before 2009, July to invest in Mutual funds Entry charges were collected, being approximately 2 %. It means for Rs.5000 / - valuing of 2 % equals to Rs.100 / - will be subtracted from the Investment amount to a total of Rs. 4900 / -, for which Units may be allotted. 

After the cancellation of entry charges, now for the complete amount units are allotted. Here unit is Rs.10 / - face value. Only for this value dividend may be given.  

INVESTMENT EVIDENCE

The Evidence for purchased Units in your name, Accounts statements will be sent through E-Mail or by post.

CERTIFICATE FOR AGENTS 

For their products to be disclosed to the general public mutual fund companies appointed agents. So, that in 2003, for the agents “AMFII” certificates were made compulsory. Up to that period, people with more money was allowed, were changed as even Rs.50 / - or Rs. 100 / - are enough to enter, by ICICI Prudential, and Reliance Mutual fund Organizations.  

QUALITY RATING

For, valuing the Mutual funds standard (quality ) and to give research reports, Credit rating Organizations and Websites are present. They perform their actions for 2 years functioning Mutual funds, and after Analysis produce Credit ratings.  

ICRA, CRISIL and Value research Online Organizations are important among them.    

ADVAN­TAGES OF MUTUAL FUNDS BRIEFLY ARE AS FOLLOWS :

Pro­fes­sional Management

Diver­si­fi­ca­tion

Return Poten­tial

Low Costs

Liq­uid­ity

Trans­parency

Flex­i­bil­ity

Well reg­u­lated 

TYPES OF MUTUAL FUNDS SCHEMES IN INDIA 

Wide variety of Mutual Fund Schemes exists to cater to the needs such as

(i)      financial position,

(ii)      risk tolerance and

(iii)     return expectations etc.

Thus mutual funds has Variety of flavors, being a collection of many stocks, and investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below.  

Overview of existing schemes existed in mutual fund category: BY STRUCTURE

1. CLOSED - ENDED SCHEMES:

These schemes have a pre-specified maturity period. One can invest directly in the scheme at the time of the initial issue. Depending on the structure of the scheme there are two exit options available to an investor after the initial offer period closes. Investors can transact (buy or sell) the units of the scheme on the stock exchanges where they are listed.

The market price at the stock exchanges could vary from the net asset value (NAV) of the scheme on account of demand and supply situation, expectations of unit holder and other market factors. Alternatively some closed-ended schemes provide an additional option of selling the units directly to the Mutual Fund through periodic repurchase at the schemes NAV; however one cannot buy units and can only sell units during the liquidity window. SEBI Regulations ensure that at least one of the two exit routes is provided to the investor.

    

During the maturity date only, cash can be collected. In-between period exit load of 0.5 to 3 % charges had to be paid. Only during N.F.O. Investment can be executed.

2. OPEN - ENDED SCHEMES:

An open-end fund is one that is available for subscription throughout the year common to everyone. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. In this scheme at any time the investors can enter, and can encash their units at their willing time. Most peoples favorite is this type of plan only. 

The most common type, the open-end mutual fund, must be willing to buy back its shares from its investors at the end of every business day. Exchange-traded funds are open-end funds or unit investment trusts which are traded in an exchange. Open-end funds are most common, but exchange-traded funds have been gaining in popularity.

3. INTERVAL SCHEMES:

Interval Schemes are that scheme, which combines the features of open-ended and closed-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vise versa if he pertains to lower risk instruments, which would be satisfied by lower returns.  For example, if an investors opt for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion.

Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesn’t mean mutual fund investments are risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can be expected higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile.

Overview of existing schemes existed in mutual fund category: BY NATURE

Based on invest­ment objec­tive, there are 3 types of Mutual Fund schemes are –

a)  Growth Schemes,

b)  Balanced Schemes and

c)  Income Schemes.

a)  Growth Schemes: 

These are also known as equity schemes. Growth schemes invest in stocks where the com­pany itself and the indus­try in which it oper­ates are thought to have good long-term growth potential. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.

b)  Balanced Schemes: 

Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in a com­bi­na­tion of both stocks and bonds and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).

c)  Income Schemes: 

Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as government bonds and corporate debentures. Capital appreciation in such schemes may be limited. It offers investors a reg­u­lar income usu­ally paid out in the form of monthly dividends.