Investing in Mutual Funds

  

What is a mutual fund?

Mutual funds offer investors the opportunity to group their money together and buy stocks, bonds and other investments "mutually” to invest in a common objective, such as generate current income or seek long-term growth. As a mutual fund investor, you don’t directly own the stock in the companies the fund purchases but share equally in the profits or losses of the fund’s total holdings – another reason they’re called “mutual funds.”

Other Key Characteristics:     

·        They’re run by professional money managers who decide which securities to buy (stocks, bonds, etc.) and when to sell them, with the goal of giving you the best return on your investment.

·        They typically have low minimum investments and are traded only once per day at the closing net asset value.

·        You get exposure to all the investments in the fund, and any income or losses they generate.

·        They offer a wide variety of investment strategies and styles.

Types of Mutual Fund

There are two types of Mutual Funds:

·     Open-Ended Mutual Fund

·     Closed-Ended Mutual Fund

What is an Open-Ended Mutual Fund?

An open-ended mutual fund refers to a mutual fund that issues directly to investors and redeems them, based on the fund’s net asset value (NAV), which is computed daily. Open-ended mutual fund has no fixed maturity date and is perpetual in nature. They are highly liquid in nature as investors can conveniently purchase and sell units at NAV. Open Ended mutual funds offer SIP (Systematic Investement Plan)

What is a Close-Ended Mutual Fund?

Close-ended mutual funds are funds that have a fixed maturity period, generally between 3-15 years. The share units of these mutual funds can be subscribed initially during the New Fund Offer (NFO) and then can be bought and sold in stock exchange like company shares, subject to demand and supply of the shares. 

Why invest in mutual funds?

They are popular for many reasons, including:

Diversification

Mutual funds give you an efficient way to diversity your portfolio without having to select individual stocks or bonds and they cover most major asset classes (groupings of similar investments such as stocks, bonds, and real estate) and sectors (specific segments of the economy such as consumer staples, energy, health care, etc.)

Professional management

Fund managers have extensive knowledge that helps them make investment decisions. A manager may adjust the portfolio mix based on changes in market conditions or a company's performance to help the fund achieve its stated objective.

Convenience

You can buy or sell your fund shares on any business day, automatically reinvest the dividends and capital gains distributions and exchange funds within a fund family without fees.

Transparency

Mutual funds are subject to industry regulation to ensure accountability and fairness. And you can see the underlying investments (stocks, bonds, cash, etc.) in each fund’s portfolio – either online or via the fund’s prospectus.