INTRODUCTION TO THE TOPIC

WHAT IS A MUTUAL FUND?

A mutual fund is a pool of money that is managed on behalf of investors by a Professional Money Manager. The manager uses the money to buy stocks, bonds or other securities according to specific investment objectives that have been established for the fund. In return for putting money into the fund, youll receive either units or shares that represent your proportionate share of the pool of fund assets. In return for administering the fund and managing its investment portfolio, the fund manager charges fees based on the value of the funds assets. Simply, A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. These investors buy units of a particular Mutual Fund scheme that has a defined investment objective and strategy. The money thus collected is then invested by the fund manager in different types of securities. These could range from shares to debentures to money market instruments, depending upon the scheme's stated objectives. The income earned through these investments and the capital appreciation realised by the scheme are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. Mutual funds are open-ended investment funds, meaning that new investors can contribute money to the fund at any time, and existing investors can return their units or shares to the fund for redemption at any time. When you redeem your units or shares of a mutual fund you will receive a cheque based on the current market value of the funds portfolio.

ADVANTAGES OF MUTUAL FUND :S. No. 1. Advantage Particulars

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Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified Portfolio Diversification investment portfolio (whether the amount of investment is big or small). Fund manager undergoes through various research Professional works and has better investment management skills Management which ensure higher returns to the investor than what he can manage on his own. Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk Less Risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities. Due to the economies of scale (benefits of larger Low Transaction volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors. Costs An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a Liquidity mutual fund are far more liquid. >Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation Choice of between its investment objectives and their own Schemes financial goals. These schemes further have different plans/options Funds provide investors with updated information pertaining to the markets and the schemes. All material Transparency facts are disclosed to investors as required by the regulator. Investors also benefit from the convenience and Flexibility flexibility offered by Mutual Funds. Investors can

9. Safety

switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes. Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.

DISADVANTAGES OF MUTUAL FUND

S. Disadvantage No. Costs Control Not in the 1. Hands of an Investor

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Investor has to pay investment management fees and fund distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund. The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no No 2. Customized right to interfere in the decision making process of a fund manager, which some investors find as a constraint Portfolios in achieving their financial objectives. Many investors find it difficult to select one option from Difficulty in the plethora of funds/schemes/plans available. For this, Selecting a they may have to take advice from financial planners in 3. Suitable order to invest in the right fund to achieve their Fund Scheme objectives.