What are mutual funds?
A mutual fund is a company that receives money from many investors and invests money in securities such as stocks, bonds and short-term debt. The combined holdings of a mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents the ownership of an investor in the fund and the income generated from it.Why do people buy mutual funds?
Mutual funds are a popular choice among investors as they generally provide the following features:Professional management:
The fund manager does research for you. They select securities and monitor performance.Diversification:
"Do not put all your eggs in one basket." Mutual funds typically invest in many companies and industries. It helps reduce your risk if a company fails.Affordability.
Most mutual funds set a relatively small dollar amount for initial investment and subsequent purchase.Liquidity.
Mutual funds investors can easily redeem their shares at any time for the current net asset value (NAV) and any redemption charges.What types of mutual funds are there?
Most mutual funds fall into four main categories - money market funds, bond funds, stock funds and target date funds. Each type has different characteristics, risks and rewards.Money market funds
Bond funds
Stock funds
- Growth funds focus on stocks that cannot pay regular dividends, but have potential for above-average financial gains.
- Income funds invest in stocks that pay regular dividends.
- Index funds track a particular market index such as Standard and Poor 500 indexes.
- Sector funds specialize in a particular industry segment.
The target date fund
What are the benefits and risks of mutual funds?
Mutual funds provide professional investment management and potential diversification. They also offer three ways to earn money:Dividend Payout.
Capital gains distribution.
Increased NAV.
All funds bear some level of risk.
With mutual funds, you can lose some or all of the money you invested because the securities held by a fund can go down in value. Dividend or interest payments may also change as market conditions change.
A fund's past performance isn't as important as you would possibly think because past performance doesn't predict future returns. But past performance can tell you how volatile or stable a fund's duration is. The more volatile the fund is, the greater the investment risk.
How to buy and sell mutual funds?
Investors buy mutual fund shares from the fund or through a broker for the fund, rather than from other investors. The price that investors pay for a mutual fund is the net asset value per share of the fund and any fees charged at the time of purchase, such as the sales weight.Mutual fund shares are "redeemable", meaning that investors can sell shares to the fund at any time. The fund usually needs to send payment to you within seven days.
Read the prospectus carefully before buying shares in mutual funds. The prospectus contains information on the investment objectives, risks, performance and expenses of the mutual fund. To know more about the key information in the prospectus, see How to Read Mutual Fund Prospectus Part 1, Part 2 and Part 3.
Understanding fees
Like any business, running a mutual fund involves a cost. The fund collects these costs to the investors by charging fees and expenses. Fees and expenses vary from fund to fund. A high cost fund should outperform a low cost fund to generate the same return for you.Even small differences in fees can also mean large differences in returns during timing. For example, if you invested 7,33,754 INR in a fund with a 10% annual return, and an annual operating expense of 1.5%, then after 20 years you would have about 36,48,591 INR. If you invested in a fund with the same performance and expenses of 0.5%, then after 20 years you would end up with 44,66,727 INR.
It takes only a few minutes to use a mutual fund cost calculator to see how the cost of various mutual funds decreases over time and eat into your returns. See mutual fund terminology for the types of fees.
Avoiding fraud
As a rule, each mutual fund is required to file a prospectus and regular shareholder report with the SEC. Before investing, be sure to read the prospectus and the required shareholder report. Additionally, the mutual fund's investment divisions are managed by separate entities, known as "investment advisors", who are registered with the SEC. Always make sure the investment adviser is registered before investing.List of all Indian Mutual Funds:
There are 44 Asset Management Companies (AMCs) or mutual fund houses in India. These companies manage the investment of the investors so that they get optimum profit. Below we have provided a list of mutual fund houses in India:- Axis Asset Management Company Ltd
- Aditya Birla Sun Life AMC Limited
- Baroda Asset Management India Limited
- BNP Paribas Asset Management India Private Limited
- BOI AXA Investment Managers Private Limited
- Canara Robeco Asset Management Company Limited
- DHFL Pramerica Asset Managers Private Limited
- DSP Investment Managers Private Limited
- Edelweiss Asset Management Limited
- Essel Finance AMC Limited
- Franklin Templeton Asset Management (India) Private Limited
- HDFC Asset Management Company Limited
- HSBC Asset Management (India) Private Ltd
- ICICI Prudential Asset Management Company Limited
- IDBI Asset Management Ltd
- IDFC Asset Management Company Limited
- IIFCL Asset Management Co. Ltd
IIFL Asset Management Ltd
- IL&FS Infra Asset Management Limited
- Indiabulls Asset Management Company Ltd
- Invesco Asset Management (India) Private Limited
- ITI Asset Management Limited
- JM Financial Asset Management Limited
- Kotak Mahindra Asset Management Company Limited (KMAMCL)
- L&T Investment Management Limited
- LIC Mutual Fund Asset Management Limited
- Mahindra Asset Management Company Pvt. Ltd
- Mirae Asset Global Investments (India) Pvt. Ltd
- Motilal Oswal Asset Management Company Limited
- PPFAS Asset Management Pvt. Ltd
- Principal Asset Management Pvt. Ltd
- Quant Money Managers Limited
- Quantum Asset Management Company Private Limited
- Reliance Nippon Life Asset Management Limited
- Sahara Asset Management Company Private Limited
- SBI Funds Management Private Limited
- Shriram Asset Management Co. Ltd
- SREI Mutual Fund Asset Management Pvt. Ltd
- Sundaram Asset Management Company Limited
- Tata Asset Management Limited
- Taurus Asset Management Company Limited
- Union Asset Management Company Private Limited
- UTI Asset Management Company Ltd
- YES Asset Management (India) Ltd
Disclaimer
Mutual funds investment will be subject to market risks. Any mutual fund listed in the document does not guarantee fund performance or its inherent creditworthiness. Please read the mutual fund document thoroughly before investing. Specific investment needs and other factors must be taken into consideration when designing a mutual fund portfolio.With effect from July 1, 2017, the applicable GST rate for all financial services is 18%.
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