Mutual Fund

A mutual fund is a pool of money managed by a professional Fund Manager. It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities.

Mutual funds are ideal for investors who either lack large sums for investment, or for those who neither have the inclination nor the time to research the market, yet want to grow their wealth. The money collected in mutual funds is invested by professional fund managers in line with the scheme stated objective. In return, the fund house charges a small fee which is deducted from the investment. The fees charged by mutual funds are regulated and are subject to certain limits specified by the Securities and Exchange Board of India (SEBI).

Mutual funds offer multiple product choices for investment across the financial spectrum. As investment goals vary post-retirement expenses, money for childrens education or marriage, house purchase, etc. the products required to achieve these goals vary too. The Indian mutual fund industry offers a plethora of schemes and caters to all types of investor needs.

Mutual funds offer an excellent avenue for retail investors to participate and benefit from the uptrends in capital markets. While investing in mutual funds can be beneficial, selecting the right fund can be challenging. Hence, investors should do proper due diligence of the fund and take into consideration the risk-return trade-off and time horizon or consult a professional investment adviser.

Mutual funds are identified by their principal investments. There are the three-broad category of funds which are as follows:

  • Debt Funds (Gilt Funds, Corporate Bond Funds, Credit Opportunity Funds, Liquid Funds),
  • Equity Funds (Large Cap Fund, Multi-Cap Funds, Small-Mid Cap, Sectoral Funds, Thematic Funds,):
  • Hybrid Funds (Balanced Funds, Arbitrage Funds etc.)

Further, they can be open-ended or close-ended mutual fund schemes.

Open-ended funds: In an open-ended mutual fund, an investor can invest or enter and redeem or exit at any point of time. It does not have a fixed maturity period.

Close-ended funds: Close-ended mutual funds have a fixed maturity date. An investor can only invest or enter in these types of schemes during the initial period known as the New Fund Offer or NFO period.

As a Mutual Fund Investor, you should understand the Risk and Return about the mutual funds. Following are few techniques to keep an eye on the performance of the fund you are invested in.

Measuring Return: An investor should always compare the returns of the funds with the benchmark (or the market) or the category average return over a period of time say three five or ten years.

Review the Performance: An investor should avoid the temptation to review the funds performance each time the markets fall or jump. For an actively-managed equity scheme, one must have patience and allow reasonable time - between 24 and 36 months - for the fund to generate returns in the portfolio.

Calculating Return on Mutual Funds: There are many ways to calculate returns from mutual fund investments. Two of the most popular methods are Absolute returns and Annualised returns.

  • Absolute Return- Absolute return is the simple increase (or decrease) in your investment in terms of percentage. It does not take into account the time taken for this change
  • Annualised Returns: A Compound Annual Growth Rate (CAGR) measures the rate of return over an investment period. It is a smoothened rate because it measures the growth of an investment as if it had grown at a steady rate, on an annually compounded basis.

Actively Managed Funds and Passively Managed Funds

Actively managed funds are those where the fund manager actively manages these funds and buys or sells stocks of companies as per the broad guidelines of the Fund

Passive fund mimics an index like a BSE or Nifty. The whole point of Index fund is to follow a certain benchmark, and therefore they are called passively managed funds.

Advantages of Mutual funds are:

  • Increase in diversification.
  • Liquidity on a daily basis.
  • Professional investment management.
  • Capacity to participate in investments that may be available only for larger investors.
  • Convenience as well as service.
  • Government oversight.

How InvesEnable will help?

We at InvestEbale, will handhold our clients in making them understand about different funds, their objective, performance and the risk associated with them and the process will include.

  • Assistance in devising the right investment strategy considering your financial goal requirement
  • Enabling the clients to invest in the mutual funds online
  • Complete access to clients about their MF holding and their performance
  • Review of their mutual fund portfolio periodically