Before Investing in Mutual Fund

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered one of the best available investments being very cost efficient and also easy to invest in as compare to others. Thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.

Mutual funds are set up to buy many stocks as they automatically diversify in a predetermined category of investments, i.e. growth companies, emerging or mid size companies, low-grade corporate bonds, etc. The most basic level of diversification is to buy multiple stocks rather than just one stock.

Regulatory Authorities

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations.

SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody.

The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry.

Types of returns

There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:

  • Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.
  • If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.
  • If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

Advantages of Investing Mutual Funds:

  • Professional Management: The basic advantage of funds is that, they are professionally managed by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments.
  • Diversification: By purchasing units in a mutual fund instead of buying individual stocks or bonds, investors’ risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others.
  • Economies of Scale: Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors.
  • Liquidity: Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want.
  • Simplicity: Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMCs have automatic purchase plans popularly known as SIP where investor can reap the benefit of mutual fund by investing as little as Rs. 50 per month basis.

Disadvantages of Investing Mutual Funds:

  • Costs: The biggest source of AMC income is generally from the entry & exit load which they charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.
  • Dilution: Because funds have small holdings across different companies, high returns from a few investments often don’t make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.
  • Taxes: When making decisions about your money, fund managers don’t consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

38 thoughts on “Before Investing in Mutual Fund

  1. Hey, you used to write magnificent, but the last several posts have been kinda boring¡K I miss your super writings. Past several posts are just a little out of track! come on!

  2. Just after study a few of the blog content on your web site now, and I truly like your way of blogging. I saved it to my bookmark web site list and will be checking back shortly. Pls look at my internet site as well and make me aware precisely what you believe.

    • Mutual funds are an affordable way for an uonrfnimed investor to diversify their investments to minimize risk. They are good in the respect that it allows you to probably not lose all your money if one or two companies go bad.On the other hand, they often have many charges incurred along with them for upkeep or maintenance and things like that. And often, the funds that have the highest amount of charges because they have the most active management often don’t show any better performance than a fund with little charges/activity.In the end though, mutual funds often don’t even beat the market performance, and returns can be harder to figure out on a daily basis. If you want to be able to see how you’re doing easily and up to the minute, consider an index fund which contains weighted pieces of a number of large stocks (like a NASDAQ or DOW index fund).On the plus side though, you can get money mutual funds from which you can write checks or even make interact payments, so basically operate like a bank account with higher interest.

    • First, I would make sure you have at least 3 months saalry saved up in the bank or in a money market fund for an emergency fund. Financial disasters like getting layed off or sick happen to all of us.Second, I would pay off all high interest debt. Pay off everything you can except the house mortgageand student loans. Paying off debt is one of the best investments you can make. You will have more money in the future because you won’t have credit card bills to pay.Third, if you have money left, start investing in stocks, bonds, and money market funds. You want to buy a diversified portfolio of stocks, as individual stocks are too risky. For most folks this means buying mutual funds. I like Vanguard.com, other people like Fidelity, TIAA-CREF, and DFA. Buy no-load, low cost funds. If you are like most people you will invest part of your money conservatively, in money market funds and bond funds, and part aggressively in stock funds. Vanguard.com has an on-line questionnaire which will give you an idea how aggressive you want to be. Investing in a mutual fund IRA for retirement may give you an income tax break. Talk to your tax adviser. You may also be able to invest in a stock mutual fund via a 401K plan at work.Believing someone you met over the Internet and know nothing about is risky. Read these websites for further information.

  3. I used to be very pleased to seek out this internet-site.I needed to thanks on your time for this excellent learn!! I definitely enjoying each little bit of it and I’ve you bookmarked to check out new stuff you blog post.

  4. I was very happy to seek out this web-site.I needed to thanks for your time for this glorious read!! I definitely having fun with every little little bit of it and I’ve you bookmarked to check out new stuff you weblog post.

  5. I am really inspired along with your writing skills and also with the format for your weblog. Is that this a paid subject or did you modify it yourself? Anyway keep up the excellent quality writing, it is rare to peer a great blog like this one today..

  6. I am really impressed together with your writing abilities as neatly as with the layout on your weblog. Is this a paid subject matter or did you modify it your self? Either way keep up the nice quality writing, it’s uncommon to see a great blog like this one nowadays..

  7. A mutual fund is a basekt of stocks, bonds, options, or commodities that spreads your risk around so that you don’t lose all your money on one particular investment vehicle.The money is pooled together and a firm runs the fund. The upsides are that you don’t have just one stock that will break you. So diversification and professional management are your positives.The downside is that mutual funds are sorta slow to make money from. They go up very little over the year in my opinion. If you do want a fund, make sure it is a NO LOAD fund. Another downside is that if a mutual fund goes down in a year, it takes so much time for it to turn around and actually make you money. Check out the Vice Fund (VICEX). They invest in companies that sell vices, such as cigaretts, gambling, alcohol. An easier investment would be a Certificate of Deposit (CD) from a bank. They yield 6% a year right now. Go to your local bank and set one up. You’ll be glad you did because it is guaranteed money.

  8. I just want to mention I am all new to blogging and definitely liked your website. Most likely I’m going to bookmark your website . You actually come with beneficial stories. Thanks a bunch for sharing with us your web site.

  9. Found your short article extremely interesting indeed. I definitely loved reading it and you simply make pretty some great points. I’ll bookmark this internet site for that long term! Relly good write-up.

  10. How to select a Mutual Fund? and Pls give some information on mutual fund, which mutual fund is good to invest?

  11. I’m pretty pleased to find this website. I need to to thank you for your time due to this fantastic read!! I definitely appreciated every part of it and I have you book marked to check out new things in your blog. Also i advise payday loan

  12. I’m impressed, I must say. Actually rarely do I encounter a blog that’s each educative and entertaining, and let me inform you, you’ve got hit the nail on the head. Your concept is excellent; the problem is one thing that not enough people are speaking intelligently about. I am very comfortable that I stumbled across this in my search for one thing relating to this.

  13. I as well as my friends appeared to be viewing the excellent secrets located on the website and then unexpectedly I got a horrible suspicion I had not thanked you for those tips. All the women were definitely as a result very interested to read all of them and already have unquestionably been taking advantage of those things. Appreciation for truly being well accommodating and then for deciding on varieties of fine topics most people are really wanting to learn about. Our sincere regret for not expressing appreciation to earlier.

  14. Although problems worldwide today, from politics troubles to the economic climate, I actually are not aware of what type to be concerned much more. All of them stressing myself out there! That for you to vote intended for, how to guard my funds, not working keep the career, maybe there is battle?

  15. I really appreciate this post. I’ve been looking all over for this! Thank goodness I found it on Bing. You have made my day! Thanks again!

  16. Good working day! This kind of post cannot become created any benefit! Studying that submit reminds me associated with my own previous place companion! They always placed speaking concerning this. I’ll forwards these pages to be able to him or her. Confident he’s going to have a very good study. Many thanks for sharing!

  17. I in addition to my buddies came following the excellent key points located on your web site while instantly came up with an awful feeling I never thanked the web site owner for them. These men happened to be certainly stimulated to see them and have in effect very much been taking advantage of them. Thank you for genuinely simply kind and for picking this sort of fabulous things millions of individuals are really needing to learn about. Our sincere apologies for not saying thanks to sooner.

  18. Great post here. One thing I would really like to say is that often most professional career fields consider the Bachelors Degree as the entry level requirement for an online certification. When Associate Certification are a great way to start out, completing the Bachelors reveals many opportunities to various employment opportunities, there are numerous internet Bachelor Diploma Programs available coming from institutions like The University of Phoenix, Intercontinental University Online and Kaplan. Another concern is that many brick and mortar institutions present Online versions of their degree programs but generally for a significantly higher charge than the organizations that specialize in online college degree plans.

  19. I like this post, enjoyed this one thanks for posting. “To affect the quality of the day that is the art of life.” by Henry David Thoreau.

  20. Thanks much for providing me a good update about this subject matter on your own web page. Must be treated that if an entirely new submit appears or if perhaps perhaps virtually any variations take place about the present posting, I would consider reading through more and focusing on how to make excellent use of individuals methods you discuss. Interesting time and thought on other people by making this web site available.

  21. I used to be very happy to find this internet-site.I wished to thanks on your time for this glorious read!! I positively enjoying each little little bit of it and I’ve you bookmarked to take a look at new stuff you weblog post.

  22. It’s actually a great and helpful piece of info. I’m satisfied that you just shared this helpful info with us. Please keep us up to date like this. Thanks for sharing.

  23. I am often to blogging and i aсtually apprecіate youг content.
    Тhаt the artіcle has actuallу pеаkѕ mу interest.
    I am going to boοkmaгk your sitе and keеp chеcking fоr neω info.

Leave a Reply to Johnnie Reckart Cancel reply

Your email address will not be published. Required fields are marked *