ALL ABOUT MUTUAL FUNDS

What are Mutual Funds ?

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.

Why choose Mutual Funds ?

Investing in Mutual Funds offers several benefits:

• Professional expertise: Fund managers are professionals who track the market on an on-going basis. With their mix of professional qualification and market knowledge, they are better placed than the average investor to understand the markets
• Diversification: Since a Mutual Fund scheme invests in number of stocks and/or debentures, the associated risks are greatly reduced.
• Relatively less expensive: When compared to direct investments in the capital market, Mutual Funds cost less. This is due to savings in brokerage costs, demat costs, depository costs etc.
• Liquidity: Investments in Mutual Funds are completely liquid and can be redeemed at their Net Assets Value-related price on any working day.
• Transparency: You will always have access to up-to-date information on the value of your investment in addition to the complete portfolio of investments, the proportion allocated to different assets and the fund manager's investment strategy.
• Flexibility: Through features such as Systematic Investment Plans, Systematic Withdrawal Plans and Dividend Investment Plans, you can systematically invest or withdraw funds according to your needs and convenience.
• SEBI regulated market: All Mutual Funds are registered with SEBI and function within the provisions and regulations that protect the interests of investors. AMFI is the supervisory body of the Mutual Funds industry

What should be kept in mind before investing in Mutual Funds ?
Mutual Fund investment decisions require consistent effort on the part of the investor. Before investing in Mutual Funds, the following steps must be given due weightage to decide on the right type of scheme:
1. Identifying the Investment Objective

2. Selecting the right Scheme Category

3. Selecting the right Mutual Fund

4. Evaluating the Portfolio

A) Identifying the Investment Objective
Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, level of income and expenses, among many other factors. Therefore, the first step is to assess you needs. Begin by asking yourself these simple questions:
Why do I want to invest?
The probable answers could be:

• "I need a regular income"
• "I need to buy a house/finance a wedding"
• "I need to educate my children," or
• A combination of all the above

How much risk am I willing to take?
The risk-taking capacity of individuals vary depending on various factors. Based on their risk bearing capacity, investors can be classified as:

• Very conservative
• Conservative
• Moderate
• Aggressive
• Very Aggressive

Points to Remember

• Do not speculate: Always evaluate risk-taking capacity.
• Do not chase returns: Because what goes up must come down.
• Do not put all eggs in one basket: Diversification reduces the risk.
• Do not stop working on Mutual Funds: Continuous evaluation of funds is a must.
• Do not time the market: Every time is good for investments.
• Mutual Funds are subject to market risks and there is no assurance that the fund objective will be achieved.
• NAVs fluctuate depending on forces affecting the Capital market.
• Past performance may or may not be sustained in the future.

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