Mutual Funds - What They Are ? Benefits of Investing In Mutual Funds
Who Is Regulatory Authority for Mutual Funds?All mutual funds are registered with SEBI (Securities and Exchange Board of India). SEBI formulates policies and regulates the mutual funds to protect the interests of the investors. It notified regulations in 1993, revised in 1996 and issues guidelines from time to time.
Who Are Asset Management Company?All Mutual funds are managed by an Asset Management Companies called as AMCs. These AMC are company that invests its clients' pooled money into securities such as stocks, debt, bonds, money markets instruments and similar securities that match the declared financial objectives and provides returns to its investors in terms of Net Asset Value called as NAV. An AMC may have various types of mutual fund schemes. The AMC hires a professional fund manager, who buys and sells securities for achieving the objectives of the mutual fund scheme.
Types of Mutual FundsThere are various mutual fund schemes to cater to the different needs
- Open-Ended Schemes
- Close-Ended Schemes
- Interval Schemes
- Growth or Equity-Oriented Schemes
- Income or Debt oriented Schemes
- Balanced Schemes
- Money Market or Liquid Funds
- Gilt Funds
- Fund of Funds Schemes
- Gold Exchange Traded Funds
- Floating Rate Funds
- Tax-saving schemes
- Index Schemes
- Sector Specific schemes
- Load or No-Load Funds
- Dividend Payout Schemes
- Dividend Reinvestment Schemes
What is NAV?
Likewise every share has per share price, mutual funds have NAV (Net Asset Value) is the value of a fund's assets minus the value of its liabilities per unit. It is calculated by the AMC at the end of every business day. NAV = (Value of assets-Value of liabilities)/number of units in the fund. Your money grows as the NAV of the mutual fund increases.
Why Investing in Mutual Funds is safer
Following are the benefits of investing in mutual funds which is safer way to grow your funds. Some of the mutual funds have delivered returns more than 60% to its investors because of the features they provide to its investors.
Professional Money Management:Professional fund managers manage the money collected by mutual funds. Fund managers monitor market and economic trends and analyze securities in order to pick good investments for achieving the objectives of the mutual fund scheme.
Small Investments:The minimum initial investment for a mutual fund is very low for most funds. You can start investing with as low as Rs. 500 and get the advantage of long term equity investment. This is the biggest benefit of mutual funds that in a very low cost the investor gets his investment managed by experts.
Diversification:An example of diversification is provided by the proverb "Don't put all your eggs in one basket". Mutual funds invest in various sound stocks or bonds, which helps in spreading the risk factor. If a particular sector does not perform well then the loss can be compensated with profits made in other sectors.
Transparency:Mutual funds provide regular updates to the investors such as daily NAVs, as well asinformation about the current value of the investment and fund manager's strategy to give a picture of how your investments are doing. The performance of a mutual funds is reviewed by various rating agencies, making it easy for investors to compare between different mutual funds.
Safety:All the mutual funds are regulated by SEBI (Securities and Exchange Board of India). It assures that your investments are managed in a disciplined and regulated manner and are in safe hands.
Liquidity:You can sell mutual funds units on any business day. Unless they have a pre-specified lock-in period, your money will be available to you anytime. An open-ended fund can be sold at NAV based prices and a close-ended fund can be traded in the stock exchange.
Choice and Variety:The investors can choose funds from a wide range of mutual funds categories and types available to them. This enables the investor to choose what suits him/her best according to his/her risk bearing capacity and return expectation.
Beat Inflation:Mutual funds is as an ideal investment option to help investor to put their savings for a long term inflation adjusted returns. Investing in mutual funds over a long period is one of the best ways to stay ahead of inflation.
Disadvantages of mutual fundsThere are some of the disadvantages involved with the mutual funds viz.
Risks and Costs:The value of mutual funds fluctuates according to the changing condition of market. Most of the mutual funds charge operating fees and expenses associated with investing in mutual funds from investors. Some mutual funds also charge high sales commissions and redemption fees.
No Guaranteed Returns:Although they are safer way to invest money, returns on mutual funds are not guaranteed as mutual funds invest in debt as well equities. Returns on mutual funds depends on the market conditions.
No Control on Investment:Investor does not have any control on investment because the fund manager decides what to invest and when to invest. It means you are trusting someone else for your money when investing in mutual funds.
No Insurance:Mutual funds do not have insurance cover. Although, all the mutual funds are regulated by SEBI (Securities and Exchange Board of India) bur are not insured against losses.
Hope I'm able to clear know how about mutual funds.