In a Mutual Fund, money from various investors is pooled together and invested in a portfolio of instruments.
Mutual Fund can invest in equities or debt instruments or other combinations.
Mutual funds are segregated into various types as per the perception and risk profile of the client that varies from short term to long term wealth creation.
Mutual Funds offers various advantages such as diversification of portfolio, professional management of funds, low costs and tax benefits.
Professional Management: The fund managers do the research for you. They select the securities and monitor the performance.
Diversification or “Don’t put all your eggs in one basket: Mutual funds typically invest in a range of companies and industries. This helps to lower your risk if one company fails.
Affordability: Most mutual funds set a relatively low dollar amount for initial investment and subsequent purchases.
Liquidity: Mutual fund investors can easily redeem their shares at any time, for the current net asset value (NAV) plus any redemption fees.
This scheme allows investors to buyor sell units at any point in time. It does not have a fixed maturity date either. You deal directly with the Mutual Fund for your investment and redemption. The key feature is liquidity. You can conveniently buy or sell your units at net asset value (“NAV”) related prices. The majority of mutual funds, 59% approximately are open-end funds.
This type of scheme has a stipulated maturity period and investors can invest only during the initial launch period known as the New Fund Offer (NFO). Once the offer closes, no new investments are permitted. The market price at the stock exchange could vary from the scheme’s Net Asset Value (NAV), because of the demand and supply situation, unit holder’s expectations and other market factors. Some close ended schemes will give you an additional option of selling your units directly to the mutual funds through periodic repurchase at NAV related prices.
SEBI Regulations ensure that at least one of the two exit routes are provided to the investor.
It operates as a combination of open and closed ended scheme, it allows investors to trade units at predefined intervals. They may be traded on the stock exchange or they may even be open for sale or redemption during pre-determined intervals at NAV related prices. When it comes to selecting a scheme to invest in, one should look for customized advice. Choose the scheme that provides the right combination of growth, stability and income, keeping your risk appetite in mind. Based on principal Investments one of the most important points in the circular is that different Mutual Funds schemes should be clearly distinct in terms of investment strategy and asset allocation. The schemes will be broadly classified into following categories: