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Mutual Funds
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Mutual Funds |
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Mutual Funds work on a very simple concept. The key word is Mutual, which means
'Beneficial to several' or 'Possessed in common'. Thus, like you, thousands – even
lacs – of other investors park their money with a Mutual Fund. All of this cumulates
to a huge investible amount which Mutual Fund managers can then deploy into the
markets. Thus a mutual fund can best be defined as a professionally managed scheme
involving the cumulative investment of different, unconnected investors.
Simply put, Mutual Fund managers invest directly in equity and other markets, on
your behalf and that of every other investor in the fund. There are several types
of Mutual Funds. They may be sector specific (focused on a specific sector, say
IT or Banks) and hence primarily invest in stocks belonging to the sector in question.
Mutual Funds may also be index specific. Which means the corpus is invested in stocks
that make up the index (eg. Sensex, Nifty, etc) in their exact index proportion.
Such funds would move in tandem with the index.
Mutual Funds need not invest entirely in stocks. The fund's investment may partially
be in such other asset classes as company deposits, government bonds, etc. Accordingly
funds are sometimes defined as Equity Funds (invested primarily in stocks) or Debt
Funds (primarily in deposits, bonds etc).
Funds may also be differentiated as Open-ended or Close-ended. Units of Open-ended
Funds may be purchased or sold by investors directly through the fund. Units of
Close-ended Funds, on the other hand, are issued at the launch of the scheme, after
which they can only be traded between shareholders in the secondary market, just
like shares. Open-ended funds are tradable only at the NAV at the end of the day,
while Close-ended funds may be redeemed at varying prices through the trading day,
just like any stock.
The performance of a Mutual Fund is reflected in its NAV (Net Asset Value). As the
fund performs better, the NAV goes up; when it does badly, the NAV falls. To strip
Mutual Fund investing to its bare basics, the idea is to sell at an NAV which is
higher than that at which you bought.
However, one must also factor in any fund management expenses. Some funds do charge
an entry or exit load – which is a commission percentage, akin to a brokerage. If
a fund performs well, it may also distribute a small percentage of the profits amongst
all unitholders. Alternatively, you may have the option of ploughing this dividend
back into the strategy and thus get an increased number of units.
Again, all said and done, as a thumb rule, if you want to invest in the stock markets
but are apprehensive because you're overwhelmed by it, Mutual Funds are the best
compromise. You are indirectly invested in the market, and yet the big decisions
are all taken by the experts.
Remember, if you want to make your money grow faster, you cannot stay in such passive
investments as bank and company deposits. You must start testing the waters of equity.
Mutual Funds offer a happy balance of relative safety and returns.
With your Destimoney Online Trading account, you can purchase and redeem mutual
fund schemes of all major fund houses online without the hassle of filing up lengthy
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DESTIMONEY ONLINE MUTUAL FUND PORTAL
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