Mutual fund is now a day popular mode of investment for all age group .
What is Mutual Fund ?
A Mutual fund is an investment program in which your fund is managed by the professionals .
In this type of investment , professionals uses the fund of investors to invest in carefully selected set of investments products and build a diversified portfolio .
The persons who manages funds are professionals and are known as Fund Managers . Fund Managers are experts and versed with how the market works.
What are the Advantage of Mutual funds ?
- The decision for the investment is made by the professionals and also the decisions will be handled by the fund managers .
- It diversify the portfolios .
- MF is a set of different types of investment products , so when we put our money in a mutual fund scheme , we automatically diversify our portfolios .
How does a Mutual Funds works ?
To invest in a mutual fund , one needs to purchase the units of a mutual funds .
Net Asset Value ( NAV) – The price of one unit is called Net Asset Value .
How to choose Mutual Fund scheme ?
What factors we should keep in our mind while choosing a Mutual fund scheme ?
There are many factors we should look before putting our money in a MF scheme .
Time Horizon – The Time Horizon is the period for which , the investment is to be made . Investor could choose a time range of his choice and according to their goal .
For long term equity should be choosen , an for short term debt instrument should be choosen .
Risk – one can calculate their Risk tolerence capacity or identify the risk appetite that the mutual fund serves is by looking at its Risk – O – meter .
A Risk – O – meter is a graphical representation of the Risk involved in a mutual fund .
Level of Risk –
There are generally five level of Risk .
Low
Moderately low
Moderate
Moderately High and
High
According to investor’s Risk profile Fund managers allocate their portfolios .
Performance Check of Mutual Fund –
Another way to find the best mutual funds is to compare its performance against the other scheme in that category.
It should be remembered that comparison must be made between the scheme of the same category . A large cap must be compare with other large cap funds.
Performance consistency – A Mutual fund should generate good returns for its investors on a regular basic and not just a one good performance .
A good fund should provide a descent returns in Bull and bear markets .
Experience – Fund managers experience has considered as a Benchmark Parameters for the selection of Mutual fund .
Ratio of expenses –
This reflects the fee which is charged by an AMC for the fund management . It has advisable to choose a fund which has a lower expenses ratio compared to other funds .
How Fund Mangers build Portfolios to get Best Returns ?
A fund managers uses different technical and fundamental parameters of a stock before making it a part of his portfolios . therefore while building their portfolio , the managers can follow any of the two processes
- Top Down Approch
- Bottom Down Approch
How to invest in Mutual fund ?
Mutual fund allows investment in two ways –
Lump Sum – This is a one time investment through a lump sum amount and let it get matured with time .
Systematic Investment Plan ( SIP ) – This method prefer periodic investment rather than a big one – time payment . Through SIP , a person can invest a minimum of 100 per month . It is ideal option for salaried person .
How SIP gives the investors the benefits of market fluctuation ?
When you invest a fixed amount monthly , you will receive different units of the mutual fund every month due to changes in the NAV .
How One Can Redeem their Investment from mutual fund ?
Like investing , redemption can also be done either in one time , or in installments . In case of installement , it is known as systematic withdrawal plan .
Fundamental attributes of a mutual fund –
The fundamental attributes of a mutual fund scheme are its basic features that can affects’s one’s decision to stay invested in a scheme or make fresh investments .
- Type of scheme
- Investment objective
- Liquidity terms
Why we should choose mutual funds ?
A Mutual fund is a pool of money from different investors , who neither have time nor the knowledge to invest in the stock market . A fund manager is an experienced individuals who manages the fund on the behalf of a mutual funds . The advantage of mutual funds are diversification , professional fund management etc .
Investment in MF , can be done as a Lump Sum or at Regular Interval known as systematic investment plan . similarly withdraw form a mutual fund scheme either be done as lump sum or systematic withdrawal plan .