For an investor mutual fund offer wide range of benefits. Some of the key benefits include:-
Portfolio Diversification:Mutual funds are a convenient and affordable way of gaining access to a wide range of investments that would be very difficult and time-consuming to purchase and manage individually. Because mutual funds typically hold 50 to 100 different investments, they offer a degree of diversification that would be difficult to achieve on your own.
Professional management:Actively managed mutual funds also give you the benefit of professional investment management. The investments are selected by experienced professionals who devote themselves exclusively to tracking the markets, analyzing investments and implementing a consistent investment strategy.
Flexibility to meet your needs and goals:A wide range of mutual funds are available to help meet the needs of every type of investor, from conservative to very aggressive. Mutual funds can also help you meet a variety of investment goals, from establishing an emergency fund to saving for a vacation, retirement or education.
Convenient Administration:Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.
Return Potential:-Over a medium to longterm, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.
Low Costs:Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.
Liquidity:In open-ended schemes, you can get your money back promptly at Net Asset Value (NAV) related prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price or avail of the facility of repurchase throughÂ Mutual Fund NAVrelated prices which some close-ended and interval schemes offer you periodically.
Transparency:You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager’s investment strategy and outlook.
Flexibility:Through features such as Systematic Investment Plans (SIP), Systematic Withdrawal Plans (SWP) and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.
Choice of Schemes:Mutual Funds offer a variety of schemes to suit your varying needs over a lifetime.
Well Regulated:All mutual-funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors.The operations of Mutual Funds are regularly monitored by SEBI.
Types of Mutual Fund Schemes
There are a wide variety ofÂ Mutual Fund schemesÂ that cater to your needs, whatever your age, financial position, risk tolerance and return expectations.
a) By Structure
Open Ended Schemes:-Â These do not have a fixed maturity. The key feature is liquidity.You can conveniently buy and sell your units at Net Asset Value(NAV) related prices, at any point of time.
Closed Ended Schemes:-Â These funds have a stipulated maturity period (ranging from 3 years to 10 years). The ‘Unit Capital’ of such schemes is fixed as it makes a one time sale of a fixed number of units. After the offer closes, closed ended funds do no allow investors to buy or redeem units directly from funds. However, to provide liquidity to investors, closed ended funds are listed on stock exchanges. Some close-ended schemes give you an additional option of selling your units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations ensure that at least one of the two exit routes are provided to the investor under the close ended schemes.
Interval Schemes:-Â These combine the features of open-ended and close-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices.
b) By Investment Objective
Growth Schemes: Aims to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short term decline in value for possible future appreciation.These schemes are not for investors seeking regular income or needing their money back in the short term.
Income Schemes: Â Aim to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.
Balanced Schemes:Â Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both shares and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace or fall equally when the market falls.
Money Market / Liquid Schemes: Â Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money. Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market.
C) Other Equity fund Schemes
Tax Saving Schemes (Tax saver mutual funds): Â These schemes offer tax incentives to the investors under tax laws as prescribed from time to time and promote long term investments in equities through Mutual Funds.
Sector Funds:Â Equity fundÂ that invest in a particular sector/industry of the market are known as Sector Funds. The exposure of these funds is limited to a particular sector (say Information Technology, Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods) which is why they are more risky than equity funds that invest in multiple sectors.
Index Funds:Â These funds have the objective to match the performance of a specific stock market index. The portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex) are less risky than equity index funds that follow narrow sectoral indices (like BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified and therefore, are more risky.
Fund of Funds:Â Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds maintain a portfolio comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a portfolio comprising of equity/debt/money market instruments or non financial assets.
Thus mutual funds offer a simple and efficient solution for investing thereby allowing investors to meet their financial goals. But investing in mutual fund is not merely giving the check and signing an application form; it also requires continuous monitoring of funds from time to time.
So whenever you plan yourÂ mutual funds investment, you will need the advice and guidance to help you reach your investment goals. In that case, consider seeking an advice from experts and consultants/distributors of mutual funds like NJ & we will help you move closer to funding the dreams of your life.