A mutual fund is a trust that is professionally-managed. It pools the funds of many investors who share a common financial goal. Mutual Fund trust then invests this fund in assets like stock, bonds, golds etc.

In an open ended fund, investors can buy and/or sell units at any time according to their convenience. The units can be purchased and sold even after the New Fund Offering (NFO) period (in case of new funds).

A closed ended fund is where the fund house raises capital through a New Fund Offer (NFO) with a predefined investment objective, type of securities and predetermined maturity date. The NFO generally has a window of 15 days after which fund units cannot be bought or sold. The prices can be seen and tracked just like other funds.

The fund managers of equity mutual fund invests the funds in BSE/NSE listed equities. The fund managers make painstaking effort to study the industry and the company before picking on the equity to invest. Once invested they also keep a close watch on the performance of the company. The fund managers are guided and regulated by SEBI.

The fund managers are expected to take adequate measures to safeguard the interest of the investor by diversification and active management of the equities.

The fund managers of debt fund lend the funds to companies, banks, government etc. The income for fund is from the interest receipts and bond price variation. The lending process is preceded by full due diligence on principal protection, interest paying capacity, credit quality of the borrower, principal repayment capacity and the tenure of borrowing.

Companies, state governments and even the central government all require money to run their operations. They offer various debt based instruments like T-Bills, Debentures, and G-Secs etc. Mutual Funds buy the debt that is issued by them.

These Funds would typically invest in government securities, NCD, CDs, CPs bonds and other fixed income securities as well as lend money to large organizations or Corporates, in return of a fixed interest rate.

In financial terms, the word “Liquid” simply means cash. A highly liquid asset is as good as hard cash. Here the redemption is also faster, you can park your funds in this category instead of letting it lie idle in savings bank account;

• Liquid Mutual Funds have the least risk factor and may give you returns that are slightly higher than a savings account

• These funds invest in faster maturing debt securities, therefore making them less risky.

• The closer the debt instrument is to its maturity, the higher the chances and surety of you getting the principal and interest.

A hybrid fund invests in equities as well as debt instruments based on scheme document approved by SEBI.

A mutual fund scheme which invests in equities of companies of given sector in the economy is called 'Sector Fund'. For example, Pharma Fund, Infra Fund etc.

Thematic fund has a central theme underlying the selection process for investment. For example UTI Infrastructure and Logistics fund, HDFC housing opportunities fund etc. By nature thematic funds are more prone to risk and volatility.

Mutual funds offer flexibility, choice, tax advantages and market participation in addition to that;

1. Mutual Funds are managed by SEBI regulated professional.

2. Offers Diversification

3. Easy and Convenient Administration

4. Return potential

5. Low cost

6. Liquidity

7. Transparency

8. Flexibility

9. Choice of schemes

10. Well regulated

11. Tax benefits

The NAV is like the price of a Mutual Fund Unit. The value of all the securities in mutual funds portfolio is calculated on daily basis. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the funds NAV or its Net Asset Value.

NAV = (Fund Asset – Fund Liabilities)/Outstanding Units

A company which manages the investment of the investors by appointing in house fund managers are Asset Management Companies, the funds do not go to the AMC the funds are held in a trust, and AMC only manages the investment process.

The Trustees ensure that the AMC has put in place adequate back office, dealing and accounting systems. The Trustees also ensure that the AMC has appointed all key personnel, including fund manager(s) for the various schemes, auditors, compliance officers, registrars, etc. The Trustee also ensure preparation of the compliance manual and design internal control mechanisms, including internal audit systems.

Keeps safe custody of the investment related documents of securities invested.

A Sponsor establishes the Mutual Fund along with any individual/body corporate. The Sponsor’s liability is restricted to his contribution. Sponsor must contribute a minimum 40% to the net worth of AMC. Sponsor is a person who has a continuing interest in the Mutual Fund and whose credibility is significantly responsible for mobilizing the savings of the public for the Mutual Fund.

Registrar or transfer agents are the trusts or institutions that register and maintain detailed records of the transactions of investors for the convenience of mutual fund houses.

Fund House appoints the Fund Manager.

Systematic Investment Plan (SIP) is a financial planning tool that helps investors to create wealth, by investing small sums of money every month, over a period of time.

A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help investors invest regularly in a disciplined manner.

Systematic Withdrawal Plan allows an investor to withdraw a fixed or variable amount from his mutual fund scheme on a preset date every month, quarterly, semi-annually or annually as per his or her needs.

An STP (Systematic Transfer Plan) is a plan that allows investor to give consent to the Mutual fund to periodically transfer a certain amount / switch(redeem) certain units from one scheme and invest in another Scheme.

1. Rupee Cost Averaging

2. Power of Compounding

3. Investment Convenience

Investors generally tend to speculate on the right time to invest. But it is a known fact that no one can predict where the market is going to move-upwards or downwards. Rupee-cost averaging has been the answer to such a scenario.

With rupee-cost averaging, an investor invests a specific amount at regular intervals irrespective of the investment’s share (unit) price. By investing regularly, the investor takes advantage of market dips without worrying about when they’ll happen. Their money buys more units when the price is low and fewer when the price is high, which can mean a lower average cost per unit over a period of time.

1. Averaging reduces the risk factor associated with lumpsum investing. For example we all are familiar with the scenario where investors who invested their money at one go when market was at its peak in the year 2007-2008 what their plight was when market crashed drastically in the year 2008. With RCA, investors get a buying opportunity when the NAV falls as he will be able to accumulate more units of the mutual fund scheme.

2. RCA frees investors from the onus of monitoring stock positions on a daily basis which would be the scenario in case of lumpsum investment or VCA.

3. It serves as a cushion against the downward trend of the market.

4. Investor no longer needs to look at dates, markets or anything.

5. Investor no longer needs to monitor external factors like economy condition, interest rates, inflation etc.

6. It is a disciplined approach towards investing regularly in mutual funds.