Mutual Fund
A mutual fund (MF) is a professionally managed type of collective investment scheme that pools money from many investors i.e. your money and invests it in stocks, bonds, short-term money market instruments, and/or other securities to yield returns. If you are apprehensive of investing in the stock market because of its unpredictability, play relatively safe with MFs.
You will receive units of the MFs in proportion to the money put in. The value of each unit is also impacted when management fees and other expenses are deducted from the overall pool of funds.
The value of a unit is called the Net Asset Value (NAV) of the MF which changes on a daily basis.
Investors who wish to purchase or sell units of a mutual fund after the scheme is fully functional must do so at a price that is linked to the NAV or the Net Asset Value.
Mutual Fund: Basics
How is the Net Asset Value calculated?
The Net Asset value (NAV) = (Market value of the fund's investments + Receivables + Accrued income Liabilities - Accrued expenses)/Number of outstanding units
What is a Systematic Investment Plan?
A systematic investment plan or SIP is an investment strategy wherein you can invest into a mutual fund at specific intervals over a defined time frame.
Are there any sector-specific funds or schemes?
There are some sector specific schemes. Some funds/schemes invest in the securities of only those sectors or industries as specified in the offer documents. It could any sector such as pharmaceuticals, software, fast moving consumer goods (FMCG), petroleum stocks, etc.
In such schemes, the returns are dependent on the performance of the respective sectors/industries.
These sector-specific schemes may give higher returns, but the investment in such schemes is riskier compared to diversified funds. As an investor, you need to be vigilant and keep an eye on the performance of the specific sectors/industries. In such schemes, it becomes extremely important for you to exit at an appropriate time. You may also need to consult an expert regarding these investments
Are investments in mutual fund units safe?
Any stock market investment is inherently risky. Different funds have different risk profiles that are clearly specified in their objectives. Funds that are low risk invest generally in debt, which is safer than equity investments. Mutual funds have access to services of expert fund managers another assurance to the investor that your money is in good hands.