The investment vehicle that is
gaining momentum in the Indian market is ‘Mutual Fund’.
Institutions known as Asset Management Companies regulate mutual
funds in India. Money from the common man is pooled in and is
diversified into other investment opportunities. Financial
institutions or companies manage these mutual funds.
Professionals are hired into these companies to evaluate the
Balance Sheet and Profit and Loss accounts of companies to know
which of them are performing and will succeed in the near
future. Thus bringing high returns to the investment.
Each unit in the mutual fund represents an investor’s share. As
the funds are invested in equities, debentures and treasury
bills its appreciation is directly linked to the NAV, which is
directly linked to the bullish or bearish trend in the market.
| However sometimes the funds are invested in more subtle
companies that have a steady growth rate and thus are not much
affected by the share market. This is the advantage of mutual
funds over banks and other investment options, as they allow you
to invest in safe, low risk and high-risk companies. Accordingly
your investment portfolio is built. Professionals employed by
the Asset Management Companies invest in stocks & shares, money
instruments, gilt, bond or a mix of all. Mutual funds even allow
the investor to put in small amounts and reap a good sum. The
investor can invest in different schemes of one fund or in
different mutual funds altogether. With the increasing
importance on mutual funds in India, international entrants have
flooded the market. Now, it is only the investor’s keen eye to
analyze, which is the best among the mutual fund companies in
India.
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On the outset for an individual to identify this he has to gain
an insight of his needs. What does he want to gain from it?
Besides this he has to consider the factors like a) market risk,
b) inflation rate, c) credit risk, d) interest rate risk and e)
stability of the political environment. Once you understand
these factors you can judge a mutual fund on the basis of a) the
diversification in the portfolio, b) returns in the NAV after
risk adjustment, c) size of the asset and d) liquidity offered.
A few schemes listed below will give you a clearer picture for
your prospective mutual fund.
1) Open Ended Fund Scheme: Here
subscription is accepted throughout the year. Buying and selling
the units at NAV price can take place at any time.
2) Close Ended Fund Scheme: This scheme entails subscription
during a defined period only, mostly during the initial public
issue.
3) Interval Funds: This is a combination of both open-ended and
close-ended fund.
A mutual fund, besides giving the investor ample of options it
even offers many benefits. Reasonable safety, diversified
portfolio, tax benefits, low cost, transparency, flexibility,
affordability and a lot more. Due to all these reasons mutual
funds are gaining prime importance. ~
A guide to India mutual funds is Authored
by M. Hemdev. |
