What is a Mutual Fund?

A mutual fund pools the money of people with similar investment goals.

Where is the money invested?

Your money is invested in various securities depending on the objectives of the scheme you choose.
•stocks
•bonds
•money market

Why invest in a mutual fund?

Professional Management:
Experience and resources to thoroughly analyze the economy/markets to spot good investment opportunities

Diversification: 
Reduces the risk to which you would've been exposed by investing in a single stock/bond
Invests in a broad cross section of industries or companies negative performance of one security will not have as much of an impact on the fund

Liquidity & Convenience:  
You will be able to get your money back within a short period as compared to other securities
Very little paperwork
Helps avoid problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies

Tax Efficiency:  
Some mutual fund schemes offer tax benefits
Dividends declared under equity schemes are tax free in the hands of investor
Mutual funds offer favourable post-tax returns

How do I make money from a mutual fund?

Capital appreciation:
As the value of securities in the fund increases, the fund's unit price will also increase. You can make a profit by selling the units at a price higher than at which you bought

Income Distribution:
The fund passes on the profits it has earned in the form of dividends

What are the types of mutual funds?

Open end schemes: You can invest or redeem in these schemes at any time
Closed end schemes: You can invest during the initial issue period and your money is locked in for a stipulated period (like 3 years, 5 years, etc)

Based on the investment objective

Growth schemes: Invest in shares of companies. Have the potential to deliver better returns over the long   term as compared to other mutual fund schemes

Types of growth funds

Diversified Funds
Sector Funds
Index Funds

Income schemes: Invest in fixed income securities such as bonds issued by corporates and government agencies
Gilt Funds invest exclusively in government securities –for added safety

Balanced schemes: Invest in both shares and bonds, thereby receiving income that can moderate the effects of price fluctuations due to stocks
Money market schemes: Invest in short term instruments such as certificates of deposits and short term bonds

Other types of schemes

Tax-Saving schemes
Equity Linked Savings Schemes
Pension Schemes
Future needs schemes
Children’s Savings Plans
Retirement benefit schemes

Fund Suitability –Risk Vs Return

How to choose the right scheme?

Determine your financial goals and your time horizon
Determine your tolerance for risk
Study the objectives of the funds available and match them with your need

How to choose the right fund house

Look for:
Professional management
Performance track record
Quality of service
Choice of schemes

How to make the winning mutual fund investment

Start early
Save regularly
Use a ‘portfolio’ approach –spread your investments across sectors and asset classes
See that your portfolio contains both short term and long term investments

How to make the winning mutual fund investment

Monitor your investment portfolio periodically –in light of market changes and changes in your life
Stay calm, steady and disciplined –keep your goals firmly in sight –do not get carried away by emotions or temporary market fluctuations

 

Disclaimer/Risk Factors: All investments in mutual funds and securities are subject to market risks and the NAV of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. There can be no assurance that a schemes investment objectives will be achieved. The past performance of the mutual funds is not necessarily indicative of future performance of the schemes. The above are only the names of the scheme and do not in any manner indicate the quality of the schemes, their future prospects or returns. The Mutual Fund is not guaranteeing or assuring any dividend under any of the schemes. The Mutual Fund is also not assuring that it will make any dividend distributions under the dividend plans of the schemes though it has every intention of doing so. All dividend distributions are subject to the investment performance of the schemes. The investments made by the schemes are subject to external risks. Please go through the offer documents before investing. Please consult your Tax consultant regarding tax implications and benefits