In today's scenario, one of the upcoming investment options in the financial market is the mutual fund. The special characteristics of mutual funds are: easy availability, risk control, liquidity, transparency, professional management and decent returns, these characteristics above attract mainly small middle class investors, investors play a safer game relative to the rise and fall of the stock market.
Many private financial organizations like ING VYSA Bank, Standard Chartered Mutual Fund, etc. are good examples, which allow investors to start with just Rs 500 only. Investors seem to have accepted the importance of mutual funds and are ready to invest in various mutual fund plans.
Mutual funds are suitable for all categories of investors who want to raise their personal funds. Investments are based on the risk factor of the investor if the risk is higher the return is also high in the same way if the risk is low the return of a particular investment will also be low.
If the risk is mildly averse, the investor should prefer a balanced fund, which only invests in stocks up to 60-70%. If the investor wants to go for more risk aversion, stick with growth funds. If the investor wants regular returns, the investor should go for income funds, with medium risk but the risk is lower than equity funds. Mutual fund managers make the decision of the funds based on the investment objective of the investors. They can opt for liquid funds like cash funds or short-term floating rate funds. They can also opt for funds depending on when you want to get your funds back. The investor who wants a short term bond fund and a quick return would be quite acceptable, as the return will be within three to six months. An income fund or an equity fund would fit in if the investor willing to afford the fund to leave it with the fund manager for more than a year.
Even within each category you can choose for example in equity funds, for example you have a variety of options: blue chip funds, mid cap funds, upstream funds, opportunity funds, dividend yield funds, sector funds that specifically invest in certain business segments, etc. Equity linked savings plans allow you to reap tax gains of up to Rs 1 lakh (Rs 100,000) per year.
Many equity funds offer the option of a systematic investment plan (SIP) which allows you to invest a certain amount each month or quarter. This amount is fixed for each deposit payable. This way, not only do you discipline your investments but, to a large extent, an investor can protect themselves against the vagaries of the market.
Debt funds do not lack luster either. The investor has the choice between medium term debt funds, short term bond funds, floating rate funds, dynamic bond funds and cash funds. If an investor wants an aggressive debt fund, he can go for golden funds. If the preference is a mix of stocks and debt, PMIs or balanced funds would do just fine.
Fair and transparent relationships
A mutual fund is nothing more than a collective savings pool. Several investors have come together to invest in stocks, bonds or both. However, mutual funds are strictly regulated. They must declare their portfolios from time to time. Almost all funds report their portfolios every month.
The net asset value (NAV) of a fund, which indicates the value of a unit of the fund on any given day, is reported on each business day. You know where your money is going and how it performs in the market.
Easy access and availability in the market:
A few years ago, even if you wanted to buy a mutual fund, it wasn't easy. Few distributors, most of them small, sold mutual funds. The quality of their advice often leaves much to be desired. But today you can buy mutual funds in over 60 cities or towns, either through their own offices or through banks.
All private sector banks now sell mutual funds over the counters of most branches. Some public sector banks have also started to market mutual funds through certain branches.
When you buy a mutual fund, you're giving the job of investing to a skilled and possibly more knowledgeable, paid fund manager to find the right opportunities for you. The service standards set by mutual fund companies are better than those of other funding sources. As other sources of fundraising are riskier than mutual funds, their investor must make direct transactions. For example, most fund distributors will come to your home or office to explain product features to you and withdraw your check.
If you want to sell your fund, you can also do it fairly quickly, mostly within one or two business days. There is no paperwork to worry about. For example, in the case of some income funds, the money will be credited directly to your bank account if the account is held with certain banks.
In the case of systematic investment plans too, you can do this with direct debits. Each month, on the day you choose, your bank account will be debited with a particular amount and specified mutual fund shares available for that amount will be purchased. No more hassle with issuing post-dated checks.
Despite all these facilities, you may have a myriad of doubts and questions. Mutual funds offer toll-free lines in over 200 locations. For example, toll-free phone line, you can know valuations, order account statements and even redeem your investments without a personal identification number.
Investing in mutual funds is better than other fundraising funds and in the years to come it will prove to be the best source of investors. If the numbers from past collections bear witness to it, investors seem to have gotten it. Public mutual funds and private mutual funds perform better. The result is moving in the upward curve of the financial market. To sum up, mutual funds provide the investor with a wide choice of varied plans with particular characteristics and can be chosen based on the investor's needs.
1. Mc.Donald, Objectives and Performance of Mutual Funds, 1991-Pg33-35.
2. R.A. Reddy, Mutual Fund Industry, 2002, pg220-226
3. K. Ashwathtappa-Growth and Development of Mutual Funds, 2006, 3rd edition, p. 12-19.
4. Journal of Financial and Quantitative Analysis, 311-333.
5. “Portfolio Performance” – The ICFAI Journal, 2002.
6. Portfolio Organizer – Growth in Demand for Mutual Funds, 2007.