Basics of a mutual fund

How do mutual funds work?
A mutual fund is a company that pools investors' money to make multiple types of investments, known as the portfolio. Stocks, bonds, and money market funds are all examples of the types of investments that may make up a mutual fund.
The mutual fund is managed by a professional investment manager who buys and sells securities for the most effective growth of the fund. As a mutual fund investor, you become a "shareholder" of the mutual fund company. When there are profits you will earn dividends. When there are losses, your shares will decrease in value.
Mutual funds are, by definition, diversified, meaning they are made up a lot of different investments. That tends to lower your risk (avoiding the old "all of your eggs in one basket" problem).
Because someone else manages them, you don't have to worry about diversifying individual investments yourself or doing your own record keeping. That makes it easier to just buy them and forget about them. That's not always the best strategy, however -- your money is in someone else's hands, after all.
Since the fund manager's compensation is based on how well the fund performs, you can be assured they will work diligently to make sure the fund performs well. Managing their fund is their full-time job!
Mutual funds can be open-ended or closed-ended. But many people consider all mutual funds to be open-ended, while putting closed-ended funds in another category.
"Open-ended" means that shares are issued in the fund (or sold back to the fund) whenever anyone wants them. With closed-ended funds, only a certain number of shares can be issued for a particular fund, and they can only be sold back to the fund when the fund itself terminates. (You can sell closed-ended funds to other investors on the secondary market, though.)
Mutual funds fall into three categories:
Equity funds are made up of investments of only common stock. These can be riskier (and earn more money) than other types.
Fixed-income funds are made up of government and corporate securities that provide a fixed return and are usually low risk.
Balanced funds combine both stocks and bonds in the investment pool and offer a moderate to low risk. While low risk may sound good, it is also accompanied by lower rates of return-meaning you risk less, but your investment won't earn as much. You have to decide how much risk you're willing to take on before you invest your money.

Most of these offer no-load funds (or sometimes low-load funds). You can find lists of mutual fund companies on the Internet and purchase shares by simply filling out an application and mailing a check. Once you are a shareholder, you will receive statements telling you how the fund is doing as well as how much your own investment is growing. You can also set up monthly bank transfers to automatically buy more shares every month.
Remember to do your research and select a mutual fund that fits the level of risk you are willing to take with your hard-earned cash. Then just sit back with comfort and harvest the best!

इन्वेस्ट इन नवे फंड ओफ्फेर्स! डोंट मिस आईटी !

इकोनोमी
In a move to promote the silk industry, the government is likely to continue with sericulture catalytic development programme (CDP) during the 11th Plan. However, the programme would be modified to suit the requirement of the state and the sector. The government also proposes to increase the budgetary allocation under the programme. The modified scheme will be implemented through the Central Silk Board (CSB) in a project mode. Under the programme, government would provide package to states mainly under three sectors -- seed, cocoon and post-cocoon. The textile ministry has asked all the state governments to submit their proposals in this regard at the earliest. It is also likely that the government would double the allocation under the programme to about Rs 400 crore from about Rs 175 crore in the 10th plan period. The scheme is aimed at development and expansion of host plantations, development of farm infrastructure, upgradation of reeling and processing technologies in silk, enterprise development programme and data base development. The government is also mulling the idea of allocating additional funds for the north-east sector under the SDP programme.(B)MUTUAL FUNDSSundaram Energy Opportunities FundInvestment Objective: To seek long term capital appreciation by investing primarily in equity and equity-related instruments of companies in the domestic market that predominantly focus on or benefit from, directly or indirectly, the opportunities and developments in the energy sector.Fund Type: A thematic close-end equity scheme that will convert automatically into an open-end scheme on completion of three years. Offer Price : Rs 10 per unit. Asset Allocation: Equity and equity related instruments in the targeted theme 65-100%; equity and equity related instruments that are outside the theme 0-35%; Treasury Bills, CBLO, Reverse Repo: 0-15% Entry Load: Nil. Exit Load: Nil (redemption at applicable NAV after deducting proportionate unamortized expenses). Minimum application amount: Rs.5000.2) Franklin Asian Equity Fund, NFOThe Indian equity markets have delivered strong returns in recent years. But it should not be of surprise that other global markets have also done well during this period, especially in Asia. The Asia (ex-Japan) region has witnesses strong economic growth with fundamentals improving on various fronts since 1998 crisis and its contribution to world GDP and market capitalization has been on rise. Helped by a combination of strong exports and growing domestic consumption, Asian companies have grown strongly interest expenses have been coming down while return on equity has gone up. In spite of the sharp rally witnessed over the recent years, valuations are attractive, taking into consideration the growth potential. Attracted by the strong economic and earning growth along with the long term prospects, global investors have been increasing exposure to Asia. The new equity fund from Franklin Templeton - Franklin Asian Equity Fund offers a convenient way to access a portfolio of Asian companies with strong potential. The broad fund facts are as follows:TypeOpen end equity fund* with a growth focusNew Fund OfferNovember 19, 2007 - December 18, 2007Scheme Re-opening onJanuary 17, 2008Minimum InvestmentRS.5000 and in multiples of Re.1OptionsGrowth & Dividend (Payout & Reinvestment) & SIPLoad (NFO/Ongoing)Entry: <5>5 Crs: NilExit: <5>5 Crs: 1% (for redemption within 6 months of allotment)3) ICICI Prudential Real Estate Securities FundCapture the Opportunity to Invest in Real EstateNFO Closes on December 14, 2007 ICICI Prudential Real Estate Securities Fund (The scheme will not be directly owning or holding Real estate properties) is a 3-year close ended fund designed to invest in Real Estate Sector and real estate oriented sectors like Cement, Construction, Metals, Hotels, Retail, Banks and Finance Companies etc.The scheme will:Predominantly invest (51% to 100%) in high yielding debt securities issued by companies associated with or benefiting directly or indirectly from the real estate sector.Invest up to 49% in equity of companies engaged in industries that benefit directly or indirectly from the Real Estate Sector or have substantial investments in property, including land holdings. The initial allocation of the fund will typically be 70% in debt instruments and 30% in equity and equity related securities.

फिनान्सिअल Planning tips

Tips on Financial Planning

Effective financial planning means : Starting early Investing regularly Investing with a long term horizon Keeping long term goals/requirements in mind Obstacles to financial planning Lack of time for diligent planning and implementation Irregular investment patterns Delayed start, leading to loss of investment opportunities Typical financial needs to be provided for Hypothetical example of a person aged 35 years who will need funds for... Higher Education of his child after approximately 11 yrs Equivalent of Rs. 10 lakhs required today Marriage of his child after approximately 16 years Equivalent of Rs. 20 lakhs required today His Retirement after approximately 21 years Equivalent of Rs. 30000 p.m. today for house- hold expenses and other commitments like medical expenses for rest of his post retirement life. Required corpus Rs.1.4 crs after 21 years. Using systematic investments to achieve your financial goals

Know what a Mutual Funds is.....?

Your gateway for Mutual fund .. Financial management planning consultant Services.. We are here to make an awareness about the smart investment vehicle mutualfund. Just go through.....! Mutual Funds are among the hottest favorites with all types of investors. Investing in mutual funds ranks among one of the preferred ways of creating wealth over the long term. In fact, mutual funds represent the hands-off approach to entering the equity market. There are a wide variety of mutual funds that are viable investment avenues to meet a wide variety of financial goals. We can have explanations for various aspects of Mutual Funds.

What are Mutual Funds ?

A Mutual Fund is a trust that pools together the savings of a number of investors who share a common financial goal. The fund manager invests this pool of money in securities -- ranging from shares and debentures to money market instruments or in a mixture of equity and debt, depending upon the objectives of the scheme.

Why choose Mutual Funds ?

Investing in Mutual Funds offers several benefits: Professional expertise: Fund managers are professionals who track the market on an on-going basis. With their mix of professional qualification and market knowledge, they are better placed than the average investor to understand the markets. Diversification: Since a Mutual Fund scheme invests in number of stocks and/or debentures, the associated risks are greatly reduced. Relatively less expensive: When compared to direct investments in the capital market, Mutual Funds cost less. This is due to savings in brokerage costs, demat costs, depository costs etc. Liquidity: Investments in Mutual Funds are completely liquid and can be redeemed at their Net Assets Value-related price on any working day. Transparency: You will always have access to up-to-date information on the value of your investment in addition to the complete portfolio of investments, the proportion allocated to different assets and the fund manager’s investment strategy. Flexibility: Through features such as Systematic Investment Plans, Systematic Withdrawal Plans and Dividend Investment Plans, you can systematically invest or withdraw funds according to your needs and convenience. SEBI regulated market: All Mutual Funds are registered with SEBI and function within the provisions and regulations that protect the interests of investors. AMFI is the supervisory body of the Mutual Funds industry.

Types of Funds

There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectation. Whether as the foundation of your investment program or as a supplement, Mutual Fund schemes can help you meet your financial goals. The different types of Mutual Funds are as follows: Diversified Equity Mutual Fund Scheme A mutual fund scheme that achieves the benefits of diversification by investing in the stocks of companies across a large number of sectors. As a result, it minimizes the risk of exposure to a single company or sector. Sectoral Equity Mutual Fund Scheme A mutual fund scheme which focuses on investments in the equity of companies across a limited number of sectors -- usually one to three. Index Funds These funds invest in the stocks of companies, which comprise major indices such as the BSE Sensex or the S&P CNX Nifty in the same weightage as the respective indice. Equity Linked Tax Saving Schemes (ELSS) Mutual Fund schemes investing predominantly in equity, and offering tax deduction to investors under section 80 C of the Income Tax Act. Currently rebate u/s 80C can be availed up to a maximum investment of Rs 1,00,000. A lock-in of 3 years is mandatory. Monthly Income Plan Scheme A mutual fund scheme which aims at providing regular income (not necessarily monthly, don't get misled by the name) to the unitholder, usually by way of dividend, with investments predominantly in debt securities (upto 95%) of corporates and the government, to ensure regularity of returns, and having a smaller component of equity investments (5% to 15%)to ensure higher return. Income schemes Debt oriented schemes investing in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Floating-Rate Debt Fund A fund comprising of bonds for which the interest rate is adjusted periodically according to a predetermined formula, usually linked to an index. Gilt Funds - These funds invest exclusively in government securities. Balanced Funds The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. They generally invest 40-60% in equity and debt instruments. Fund of Funds A Fund of Funds (FoF) is a mutual fund scheme that invests in other mutual fund schemes. Just as fund invests in stocks or bonds on your behalf, a FoF invests in other mutual fund schemes.

Snapshot of Mutual Fund Schemes

Mutual Fund Type Objective Risk Investment Portfolio Who should invest Investment horizon Money Market Liquidity + Moderate Income + Reservation of Capital Negligible Treasury Bills, Certificate of Deposits, Commercial Papers, Call Money Those who park their funds in current accounts or short-term bank deposits 2 days - 3 weeks Short-term Funds (Floating - short-term) Liquidity + Moderate Income Little Interest Rate Call Money, Commercial Papers, Treasury Bills, CDs, Short-term Government securities. Those with surplus short-term funds 3 weeks - 3 months Bond Funds (Floating - Long-term) Regular Income Credit Risk & Interest Rate Risk Predominantly Debentures, Government securities, Corporate Bonds Salaried & conservative investors More than 9 - 12 months Gilt Funds Security & Income Interest Rate Risk Government securities Salaried & conservative investors 12 months & more Equity Funds Long-term Capital Appreciation High Risk Stocks Aggressive investors with long term out look. 3 years plus Index Funds To generate returns that are commensurate with returns of respective indices NAV varies with index performance Portfolio indices like BSE, NIFTY etc Aggressive investors. 3 years plus Balanced Funds Growth & Regular Income Capital Market Risk and Interest Rate Risk Balanced ratio of equity and debt funds to ensure igher returns at lower risk Moderate & Aggressive 2 years plus

How to choose the right Mutual Fund scheme

Once you are comfortable with the basics, the next step is to understand your investment choices, and draw up your investment plan relevant to your requirements. Choosing your investment mix depends on factors such as your risk appetite, time horizon of your investment, your investment objectives, age, etc. What should be kept in mind before investing in Mutual Funds ? Mutual Fund investment decisions require consistent effort on the part of the investor. Before investing in Mutual Funds, the following steps must be given due weightage to decide on the right type of scheme: 1. Identifying the Investment Objective 2. Selecting the right Scheme Category 3. Selecting the right Mutual Fund 4. Evaluating the Portfolio A) Identifying the Investment Objective Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, level of income and expenses, among many other factors. Therefore, the first step is to assess you needs. Begin by asking yourself these simple questions: Why do I want to invest? The probable answers could be: "I need a regular income" "I need to buy a house/finance a wedding" "I need to educate my children," or A combination of all the above How much risk am I willing to take? The risk-taking capacity of individuals vary depending on various factors. Based on their risk bearing capacity, investors can be classified as: Very conservative Conservative Moderate Aggressive Very Aggressive What are my cash flow requirements? For example, you may require: A regular Cash Flow A lumpsum after a fixed period of time for some specific need in the future Or, you may have no need for cash, but you may want to create fixed assets for the future B) Selecting the scheme category The next step is to select a scheme category that matches your investment objectives: For Capital Appreciation go for equity sectoral funds, equity diversified funds or balanced funds. For Regular Income and Stability you should opt for income funds/MIPs For Short-Term Parking of Funds go for liquid funds, floating rate funds, short-term funds. For Growth and Tax Savings go for Equity-Linked Savings Schemes. Investment Objective Investment horizon Ideal Instruments Short-term Investment 1- 6 months Liquid/Short-term plans Capital Appreciation Over 3 years Diversified Equity/ Balanced Funds Regular Income Flexible Monthly Income Plans / Income Funds Tax Saving 3 yrs lock-in Equity-Linked Saving Schemes (ELSS) C) Selecting the right Mutual fund Once you have a clear strategy in mind, you now have to choose which Mutual fund and scheme you want to invest in. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some important factors to evaluate before choosing a particular Mutual Fund are: The track record of performance over that last few years in relation to the appropriate yardstick and similar funds in the same category. How well the Mutual Fund is organized to provide efficient, prompt and personalized service. The degree of transparency as reflected in frequency and quality of their communications. D) Evaluation of portfolio Evaluation of equity fund involve analysis of risk and return, volatility, expense ratio, fund manager’s style of investment, portfolio diversification, fund manager’s experience. Good equity fund should provide consistent returns over a period of time. Also expense ratio should be within the prescribed limits. These days fund house charge around 2.50% as management fees. Evaluation of bond funds involve it's assets allocation analysis, return's consistency, it’s rating profile, maturity profile, and it’s performance over a period of time. The bond fund with ideal mix of corporate debt and gilt fund should be selected.

How to calculate the growth of your Mutual Fund investments ?

Let's assume that Mr. Gupta has purchased Mutual Fund units worth Rs. 10,000 at an NAV of Rs. 10 per unit on February 1. The Entry Load on the Mutual Fund was 2%. On September 15, he sold all the units at an NAV of Rs 20. The exit load was 0.5%. His growth/ returns is calculated as under: 1. Calculation of Applicable NAV and No. of units purchased: (a) Amount of Investment = Rs. 10,000 (b) Market NAV = Rs. 10 (c) Entry Load = 2% = Rs. 0.20 (d) Applicable NAV (Purchase Price) = (b) + (c) = Rs. 10.20 (e) Actual Units Purchased = (a) / (d) = 980.392 units 2. Calculation of NAV at the time of Sale (a) NAV at the time of Sale = Rs 20 (b) Exit Load = 0.5% or Rs.0.10 (c) Applicable NAV = (a) – (b) = Rs. 19.90 3. Returns/Growth on Mutual Funds (a) Applicable NAV at the time of Redemption = Rs. 19.90 (b) Applicable NAV at the time of Purchase = Rs. 10.20 (c) Growth/ Returns on Investment = {(a) – (b)/(b) * 100} = 95.30 %

Points to Remember

Do not speculate: Always evaluate risk-taking capacity. Do not chase returns: Because what goes up must come down. Do not put all eggs in one basket: Diversification reduces the risk. Do not stop working on Mutual Funds: Continuous evaluation of funds is a must. Do not time the market: Every time is good for investments. Mutual Funds are subject to market risks and there is no assurance that the fund objective will be achieved. NAVs fluctuate depending on forces affecting the Capital market. Past performance may or may not be sustained in the future. Returns are neither guaranteed nor assured.

Glossary

Assets Management Company: A highly regulated organization that pools money from many people into portfolio structured to achieve certain objectives. Typically an AMC manages several funds –open ended/ close ended across several categories- growth, income, balanced. Balanced Fund: A hybrid portfolio of stocks and bonds. Close Ended Fund: They neither issue nor redeem fresh units to investors. Some closed ended funds can be bought or sold over the stock exchange if the fund is listed. Else, investor have to wait till redemption date to exit. Most listed close ended funds trade at discount to the NAV. Open Ended Fund: A diversified and professionally managed scheme, it issues fresh units to incoming investors at NAV plus any applicable sales charge, and it redeems shares at NAV from sellers, less any redemption fees. Entry/ Exit Load: A charge paid when an investor buys/sells a fund. There could be a load at the time of entry or exit, but rarely at both times. Expense Ratio : The annual expenses of the funds, including the management fee, administrative cost, divided by the fund under management. Growth/Equity Fund: A fund holding stocks with good or improving profit prospects. The primary emphasis is on appreciation. Liquidity: The ease with which an investment can be bought or sold. A person should be able to buy or sell a liquid asset quickly with virtually no adverse price impact. Net Assets Value : A price or value of one unit of a fund. It is calculated by summing the current market values of all securities held by the fund, adding the cash and any accrued income, then subtracting liabilities and dividing the result by the number of units outstanding. Interest Rate Risk: The risk borne by fixed-interest securities, and by borrowers with floating rate loans, when interest rates fluctuate. When interest rates rise, the market value of fixed-interest securities declines and vice versa. Credit Risk: Credit risk involves the loss arising due to a customer’s or counterparty’s inability or unwillingness to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions. Capital Market Risk : Capital Market Risk is the risk arising due to changes in the Stock Market conditions.

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