What is Mutual Funds and Why Mutual Funds?

While I have been writing this blog…Sensex has been roaring, crossing up 20k levels and trying to reach 21k no sooner.

Via this blog, I would be sharing views on Equity, MFs, little bit of Insurance. Though Equity being my forte, I would start with MF as equity being a vast area where MF is not that much.

Starting with MF then, the first question on everyone’s mind would be What is and Why Mutual Funds?

The answer to this is very simple.. A MF acts like a trust wherein they pool in savings of a huge number of investors (who are called unit holders) with a common financial goal. Once the money is collected they are then invested in various products like capital markets / debt markets by qualified professionals. The capital appreciation is then distributed to the unit holders in proportion to the units hold by them.

These hectic days we all have, wherein we hardly have time for ourselves then how would be monitor our finances on a daily basis, where by we are struggling for a good savings / investments and worried about our future financially. Mutual funds have qualified professionals who do all this for you. This is the reason why, the world over, they have become the most popular means of investing.

Some advantages:

-          Qualified Professionals managing your money on a daily basis.

-          Minimized Risk

-          Diversification of funds.

-          Less paper work.

-          Low cost.

-          Tax Saving.

-          Various funds / schemes to invest in.

-          Dividend distribution

-          Auto debit from bank accounts.

-          Very organized and transparent

-          Easy to withdraw

-          No in-depth study required

-          Can start at an early age with small amount too (mere `500 p.m.)

Here is a picture depicting the same: 

Different types of Funds & Schemes:

-          Open-ended Fund:  This fund is available for subscription all through the           

year. Majority of funds are open-ended so that an investor can be flexible to buy or sell at anytime.

-          Close-ended Fund: Just the opposite of the above fund. This fund operates for a fixed tenure (mostly from 3-5 years). The fund would open for subscription only during a specific period where in investor can buy or sell.

-          Interval Funds: It’s the combination of the above two funds.

-          Growth / Equity oriented scheme: The main objective of this scheme is to give capital appreciation over medium to long term. They mostly invest a huge percentage of the funds in Equities. They then for sure carry high risk but at the same time can give high returns also. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The same has to be selected while applying. Investor also has an option to change the same at any point of time.

-          Income / Debt oriented scheme: Main objective of this scheme is to provide regular and steady income. They mostly invest in fixed income securities such as bonds, corporate debentures, Govt. securities. These schemes do have less risk is compared to equity schemes. They don’t get affected with the Stock market fluctuation but will get affected on when there are changes in Interest Rate.

-          Balanced Fund: Main objective of this fund is to provide growth and regular income, so they invest in both equities and fixed income securities. The portion is already indicted in the form itself.

I do not want my each blog post to be real long…so ill end here for now..

There are many more funds / schemes which I would take up in the next post..

Would be great if you all could leave in some comments for me to improve J

Contd…