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Investments Mutual FundsI. Introduction:-Different investment avenues are available to investors. Mutual funds also offer good investment opportunities to the investors. Like all investments, they also carry certain risks.Mutual fund is an investment scheme by which the resources pooled from different investors, are invested in securities of different companies.
The main objective of mutual funds is to reduce risk and this is achieved by investing funds by diversification of portfolio.A money market mutual fund is mostly an open-ended fund investing into short term debt instruments like treasury bills, government agency securities, commercial paper, bankers acceptances, repurchase agreements, certificate of deposits and municipal notes.
These instruments in themselves require a very heavy investment and are generally out of the reach of the common man. Thus, money market mutual funds make these instruments available to us in the form of a fund. Just like a regular mutual fund, money market mutual funds issue redeemable units to the investor and are also bound by the guidelines of SEC. These funds carry an objective of preserving the principal while yielding a decent rate of return, which is generally more than what is being offered by a normal savings account.
Money market mutual funds declare dividends daily even though the dividend amount would be paid out monthly. If you totally cash out your investment in these funds before the end of the month, than you shall receive the cumulative declared dividend from the first of the month to the date you sold out. And in case, you redeem partially, then dividend declared on the sold shares would be a part of the entire dividend amount credited to your account at the end of the month. By paying out the dividend regularly, money market mutual funds are able to regulate and control the NAV of their units.Money market mutual funds offer high safety and liquidity at the same.
They are considered to be the most stable and safe investment and offer a fixed return with short maturity. Investing into funds having assets into debt instruments of bank, large corporations and government carry a low default risk when compared to similar products investing into other instruments. They offer the investor the flexibility of entering and exiting at any point time, enabling the settlement to take place on the same day as the request for redemption. Money market funds are often used by brokerage firms, investment houses to park surplus cash or liquidity of the customer and help him earn some return on the money lying idle otherwise.
II. Schemes according to investment objective:- A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open ended or close ended schemes. Such schemes may be classified mainly as follows:
Growth or Equity oriented scheme. Income or Debt oriented scheme.Balanced Fund Money market or liquid fund. Gilt fund .Index funds Sector specific funds or schemes Tax saving schemes.Assured return schemes. Load or no-load fund
IV. Procedure for investing in a mutual fund:- Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contract the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Now a days the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks of returns. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors.Investors should not be carried away by commission or gifts given by agents or distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decisions.
CRITERIA FOR INVESTMENT IN MUTUAL FUND SCHEMES:-An investment should take into account his risk taking capacity, age factor, and financial position. As already mentioned, the schemes invest in different type of securities as disclosed in the offer documents and offer different returns and risks. Investors may also consult financial experts before taking decisions. Agents and distributors may also help in this regard.Mutual funds are required to dispatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In case of close ended schemes, the investors would get either a demat account statement or unit certificates are these are traded in the stock exchanges.
In case of open ended schemes a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. The procedure of repurchase is mentioned in the offer document.In case of failures to dispatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified from time to time.No change in the nature or terms of the scheme known as fundamental attributes of the scheme can be carried out unless a written communication is sent to each unit holder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unit holders have the right to exit the scheme.
The mutual funds are also required to follow similar procedure while converting the scheme form close ended to open ended scheme and in case of change in sponsor. There may be changes from time to time in a mutual fund. The mutual funds are required to inform any material changes to their unit holders. Apart from it many mutual funds send quarterly newsletters to their investors.At present offer documents are required to be revised and updated at least once in two years. In the meantime, new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted.
PSYCHOLOGY INVESTORS:-Some of the investors have the tendency to prefer a scheme that is available at lower Net Asset Value (NAV) compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is issuing units whereas the existing schemes in the same category are available at much higher NAVs. Investors may please note that in case of mutual funds schemes, lower or higher NAVs of similar type schemes of different mutual funds have no relevance. On the other hand investors should choose a scheme based on its merit considering performance track record of the mutual fund, service standards, and professional management.Investors should not assume some companies having the name mutual benefit as mutual funds. Mutual funds can mobilize funds from the investors by launching schemes only after getting registered.
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