Aakhir yeh’Mutual fund’ hai kya yaar? whats this Mutual Fund, I want to invest my Hard Earned money, with Low risk and Good returns was the question asked by my friend, and I immediately got into investigating work.
So bhai to put it very simply, a mutual fund pools together money from a number of investors, uses professionals to manage and invest it with the aim of achieving a return. And this mutual funds industry is regulated by the Securities and Exchange Board of India(SEBI).
There are some definations you might require while having discussions with your peers:) sometimes even if we know these words, its enough to put an’impression’ you see;) So
AMC
Bus’AMC AMC AMC’ bolne ka:) lekin whats this AMC? Its an Asset Management Company with a fund house, or the company that manages the money.
NAV
Phir ekdum se bolne ka’NAV’:) koi poocha tou answer
Net Asset Value is the price of an unit of a fund. Normally a fund when comes out it has an NFO(tagline New Fund Offering), and its priced around Rs 10. Later, depending on the value of the investments, this price could rise or fall.
Load(yeh woh load nahi jo hum apne’Sir’ pe lete)
This is a fee charged when you buy or sell the units of a fund.
When you buy the units of a fund, you pay a percentage of it as a fee. This is known as the entry load. Normally Its around 2% on the total money you invested in the fund(entry Load), It will be 2% of the value of the Money you got after selling the fund(exit load).
Generally, if funds charge an entry load, they will not charge an exit load. Or vice versa. Only one of the loads is charged. Its ok since they cannot manage your headache for free right?
Now lets move to SIP
A Systematic Investment Plan is a periodic investment in a mutual fund. Every month or every three months, you will have to commit to putting in a fixed amount. This will go towards the purchase of units.
Let’s say that every month you commit to investing, say, Rs 1000 in your fund. At the end of a year, you would have invested Rs 12000 in your fund.
If NAV(Net Asset Value) of the fund on the day you invest in the first month is Rs 20, you will get 50 units.
Second Month, if the NAV is Rs 40. You will get 25 units.
Third Month, if the NAV is Rs 10. You will get 100 units.
Total Units after three months, equals 175 units. On an average, you would have paid around Rs 17 per unit. This is because, when the NAV is high, you get fewer units per Rs 1, 000. When the NAV falls, you get more units per Rs 1, 000.
All types of equity funds(funds that invest in the shares of companies), debt funds(funds that invest in fixed-return investments) and balanced funds(funds that invest in both) offer a SIP.
Last defination ELSS
Equity Linked Saving Schemes are diversified equity mutual funds(funds that invest in the shares of various companies of various sectors) with a tax benefit.
To avail of the tax benefit, your money must be locked up for at least three years. They ask you to lock your money for 3 years coz you must look Equity as a’long-Term’ investment.
There are two ways in which you can invest in a mutual fund.
1. A one-time payment
If you invest directly in the fund, you just hand over the money and get your fund units depending on the value of the units on that particular day.
Let’s say you want to invest Rs 20, 000. All you have to do is approach the fund house and buy units worth Rs 20, 000. So depending on the entry or exit load that company attaches to the fund you get the number of units(so simple)
2. Periodic investments
This is our’safe-bet’ called as a SIP. Its just like’Recurring deposit’ but the returns are completely different.
How to invest?
Just call or Enter the Office of an Asset Management Company
Invest online through various trading websites ICICI, HDFC, IDBI etc
I am already into’ICICI Direct.com’ hehehe and very excited about it:)
The website is peanuts to handle, no paper work, just Buy and Sell and
invest.
There are Different Types of Mutual Funds to look for, understand what you
want, get all your definations right and then invest.(I am still studying)
1. Balanced Mutual Funds:
Balanced funds invest in equity(shares) and debt(fixed income instruments).
Usually, they put around 50% of their total investments in debt and 50% in equity. Balanced funds seek to get the best from both worlds.
These funds are for those who want to benefit from the stock market but don’t know how to digest volatility. Definately keep some of your investments in these Balanced Mutual funds
Example: KOTAK Balance, HDFC Prudence, Franklin Templeton India Balanced etc etc.
2. Diversified Equity Funds:
These mutual funds invest in the stocks of various companies of various sectors.
These Funds if properly chosen have really very High Returns.
Example: Franklin India Prima, Franklin India Prima Plus, HDFC Equity etc etc
In this Diversified Equity Funds, their is another type which is really picking up very very fast, called a Contrarian approach, this means the fund manager neglects all the popular stocks that everyone is buying, and will invest in those stock who have very good potential to grow further, but are currently undervalued.
These Mutual ’CONTRA’ Funds are gaining lots of returns to the investors.
Example is: Magnum CONTRA(from SBI).
From my’novice’ experience in this field, I could understand these basic
things about Mutual Funds and that the TOP Players in this field right now are
HDFC(with six 5 Star Funds)
Franklin Templeton(with atleast four 4 Star funds)
This was one field:) we never use to discuss . now when I hear these words. AMC, NAV, SIP, ELSS. I know what exactly that person is talking.
See you guys. till I hear some more’unknown’ words.
Till then its Rating & Comments time:)