How to invest in Mutual Funds ?

What is a Mutual Fund?

* A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal.

*  Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds.

*  These investors buy units of a particular Mutual Fund scheme that has a defined investment objective and strategy.

*  The money collected is invested by the fund manager in different types of securities.  These could range from shares to debentures to money market instruments, depending upon the scheme's stated objectives

Mutual Fund is ......

● A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal.
●. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds.
●. These investors buy units of a particular Mutual Fund scheme that has a defined investment objective and strategy.
●. The money collected is invested by the fund manager in different types of securities.  These could range from shares to debentures to money market instruments, depending upon the scheme's stated objectives.
●. The income earned through these investments and the capital appreciation realized by the scheme are shared by its unit holders in proportion to the number of units owned by them.

Benefits of Mutual Funds

■. Professional Management:
●  Informed money managers may make better decisions than uninformed investors.
●  By pooling the money of thousands of investors, mutual funds provide full - time, high - level professional management that few individual investors can afford to obtain independently.
●. Reduced transaction costs:. Costs are reduced with economies of scale.
●. Direct Costs:. Brokerage and exchange fees.  Try to create your own diversified portfolio of 50 stocks 'you'd need at least $100,000 and you Will pay thousands of dollars in commissions to assemble your portfolio. A mutual fund lets you participate in a diversified portfolio for as little as 50,000 Inr and sometimes less.
●. Indirect Costs : Search costs and decision making
●. Taxes: These costs might be higher or lower depending on certain factors.

IMPORTANCE OF MUTUAL FUND

*. TAX BENEFIT - Mutual fund do not deduct tax at source from dividends, mutual fund themselves are totally exempt from tax on all Income on their investment.
*. SUPPORT CAPITAL MARKET - It provide sustainable domestic source of demand for capital market instruments, it provide valuable liquidity to capital market.
*. PROMOTE INDUSTRIAL DEVPT - It provide financial resources to the industries at market rate, it create a demand for these capital market instruments.
*. PROVIDE GREAT AFFORDABILITY & LIQUIDITY - It provide an attractive & cost effective alternative to direct purchase of shares, units can be sold to the fund at the net asset value.
*. ACT AS SUBSTITUTE  TO IPO - It also guaranteed a certain percentage of IPO's by companies, allotment of shares is more or less guaranteed.
*. KEEP MONEY MARKET ACTIVE -  It provide stability to share prices, safety to investors, resources to prospective entrepreneurs.
*. PROVIDING RESEARCH SERVICE -  Investment is done purely on basis  of thorough research, investor get the benefit of the research done by fund.

Benefits Of Investing In Mutual Funds

●. Easy to buy and sell.
●. Investments can be made in lump sum or periodic payments ( easy on the pocket ).
●. Mutual fund industry in India is very well regulated and transparent.
●. Professional management - saves time, cost and reduces risk.
●. Diversification - to protect from downside risk.

Types of Mutual Funds

An Open - Ended Fund

●Unlimited Capitalization
● No predetermined date of redemption
● Sale & purchase of units at
   current net asset value (NAV)
● No restrictions on entry & exit
● Purchase of units directly
    from funds
● Sale of units directly to the
    funds

A Close - Ended Fund

● Constant Capitalization
●  Pre-determinded date of
     redemption
●  Pre-determinded date for
     closing subscription
●  Frequent lock- in-period
●  Purchase & sale of units at
     the traded prices at the
     stock exchanges

" In India, additionally, the close-ended funds can be purchased from & sold back to the funds"

Significance of MUTUAL FUNDS

●  Expert on your side:  When you invest in a mutual fund, you buy into the experience and skills of a fund manager and an army of professional analysts.
●. Limited risk :. Mutual funds are diversification in action and hence do not rely on the performance of a single entity.
●. More for less :  For the price of one blue chip stock for instance, you could get yourself a number of units across a number of companies and industries where you invest in a fund!
●  Easy investing :  You can invest in a mutual fund with as little as Rs.5,000.  Salaried individuals also have the option of investing in a monthly savings plan.
●  Convenience :  You can invest directly with the fund house, or through your bank or financial adviser, or even over the Internet.
●  Investor protection :  A mutual fund in India is registered with SEBI, which also monitors the operations of the fund to protect your interests.
●  Quick access to your money :  It's good to know that should you need your money at short notice, you can usually get it in four working days.
●  Transparency :  As an Investor, you get updates on the value of your units, information on specific investments made by the mutual fund and the fund manager's strategy and outlook.
●  Low transaction costs : A mutual fund, by sheer scale of its investments is able to carry out cost - effective brokerage transactions.
●  Tax benefits :  Over the years, tax policies on mutual funds have been favourable to investors and continue to be so.