Worldwide Mutual Fund has a long and successful history. The popularity of the Mutual Fund has increased manifold. In developed financial markets, like United States, Mutual Funds have almost overtaken bank deposits. In India, the Mutual Fund industry started with the setting up of Unit Trust of India in 1964, Public sector banks and financial institutions began to establish Mutual Funds in 1987. The private sector and foreign institutions were allowed to set up Mutual Funds in 1993. Today, there are 33 Mutual Funds and over 200 schemes with total assets of approximately 7 lacs crores. This fast growing industry is regulated by the Securities and Exchange Board of India (SEBI).
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.
Investment can be in:
Structure of Mutual Fund in India
Mutual Funds schemes can be classified:
|Objective||Time Horizon||Risk Profile||Typical Investment Pattern|
|Equity (%)||Debt (%)||Money Mkt / Others (%)|
|Money Market||Short Term||Low||Nil||0 – 20||80 – 100|
|Income||Medium – Long Term||Low to Medium||Nil||80 – 100||0 – 20|
|Equity||Long Term||High||80 – 100||0 – 20||0 – 20|
|Balanced||Long Term||Medium to High||0 – 60||0 – 40||0 – 20|
|Tax Savings||Long Term||High||80 – 100||80 – 100||0 – 20|
Net Asset Value:
The price of one unit of a mutual fund scheme.
NAV = (Assets – Liabilities) / No. of units
NAV1 – Previous NAV
NAV2 – Current NAV
Rolling Return:The annualized return for a particular period say 1 year, 1 month or even 1 week.
Risk Associated With A Mutual Fund Schemes
Following types of risks are associated with a mutual fund scheme:
Credit risk – The possibility that the company holding your money will not pay the interest or dividend due, or the principal amount when it matures.
Inflation risk – The risk that the rupee you get when you sell will buy less than the rupee you originally invested.
Interest rate risk The possibility that a fixed debt instrument, such as a bond, will decline in value due to a rise in interest rates.
Market risk – The risk that the unit price or value of your investment will decrease.
Few Facts about MF’s:
Offer Document – An official document that each investment company must publish, describing the mutual fund and offering its shares for sale. It contains information that has been mandatorily required by SEBI. It clearly indicates the investment objective and philosophy of the scheme and gives all the necessary information to the investor required for investment.