A mutual fund is investment schemes that are managed by professional team. This is one of the primary benefits of investing in mutual funds. It is regulated by an asset management company. The company brings together a cluster of peoples. They are invests their money in stocks. Don’t consider mutual fund as an alternative stocks and bonds investment option. It collect money from number of investors and invests this pool of money in stocks, bonds, money markets. The mutual fund participants equally get the proportional share of the fund’s gains, losses, income and expenses.
We can buy mutual funds, which basically represent the share of holdings in a particular scheme. Since all the mutual funds are registered with SEBI. They function with strict rules and regulation to protect the interests of each investor. These shares can be purchased or reclaim as needed at the fund’s current net asset value. NAV is the total asset value per unit of the fund and is calculated at the end of every business day by the AMC. Some of the AMC have service charges it is called load, on their funds they have both entry load and exit load, to compensate for distribution costs. No-load funds are Funds without a sales charge.
This Net Asset Value keeps fluctuating corresponding to the funds that you hold. So, all the investors join in same preposition for the gain or loss of the fund. The value of all the securities in the portfolio is calculated daily. All the expenses are deducted and the average fund which is calculated as balance value divided by the number of units in the fund is the fund’s NAV. The selection of mutual fund investment is very much important for an investor. Before investing in a particular mutual fund, we must search everything about it like its performance and liability etc. after all the filtering process we have to choose the correct scheme for you.
We have to check the performance of the scheme in long term basis. Some of the investors embarrassed by whether they picked up the correct schemes even after investing in them for number of years. Mutual funds make your record-keeping simple since it provides you the detailed reports and statements. The performance of your mutual funds can be simply and easily monitor by referring the business pages of major newspapers or by using some Mutual Funds section.
A regular investor looking to invest in the stock market need not look beyond multi capital mutual funds or diversified equity schemes
There are two funds in mutual funds
- Open-Ended Funds
The investor can enter and exit the fund scheme at any time during the scheme period. Open-end funds with more than 65% of equity exposure are exempt from dividend tax payment for a period of 3 years.
Asset management companies are commonly issuing the open ended funds. In these type buy and sell in a continuous way.
- Close-Ended Funds
It is just opposite to the close ended funds. In this type the retrieval is only possible when the NFO period of scheme is over. However, Stock exchanges prepare list of close-ended funds and investors can buy/ sell units in the secondary market.
Money management: money management is in professional way. Fund managers are watching the market and economic trend in order to confirm the investment strategies. The fund criteria as are implementing by the fund manger so they have more responsibility to handle it.
Diversification: It is the main advantages of the mutual fund. It is the main way to reduce the risk ratio. The main offering of mutual fund is that it gives an option to enlarging assets according on their investment needs.
Liquidity: Investors will receive the benefit within a short period of time. They can sell or buy their mutual fund units on any business day and on their investments they will receive the current market value.
Affordability: In most of the funds the initial investment is low compared to others. For most funds the minimum initial investment is low. So we can easily start with low investments.
Convenience: it gives the convenience. Most of the private sector funds give you the trust worth periodic purchase plans, automatic reinvestment of interest and dividends and the withdrawal plans.
Flexibility and variety: You can choose from blue-chip stock funds, sectored funds. It should provide income with reserved growth. It has high risk in the search for returns. You have two choices for buying funds either combine stocks and bonds in the same fund or balanced funds.
They have tax benefits compared to other investment method Mutual Fund dividends have 100% Income Tax exemption. Short term capital gains is taxed at 15% for equity Funds. But Long term capital gains are not applicable. If the fund is Debt Funds then Short term capital gains is taxed as per the slab rates applicable to you. And for Long term without factoring indexation benefit capital gains tax to be lower of 10% and 20% on the capital gains after factoring indexation benefit.
Equity Funds are those funds where more than 65% of the total proceeds of such funds are invested in equity shares in domestic companies. Mutual funds can be used to invest in asset classes such as equities or fixed income. These are investment vehicles.
If you choose the correct scheme in correct time you can make profit from it. Because it handled by a reliable group of peoples they follows a proper and specific way to protect your fund, and managed by a clearly enthusiastic team. The policies and securities are given by an authorized sector so you have to check any time you need. It is an opaque channel so no need to worry, your money is in a safe hand. It any market condition occurs reversal then the loss divided in equal parts and if got profit it also divided equally for fund holders. It is the main benefit of this type of scheme.
Here is some good blogs for you to read