What to Know About Mutual Funds?

What to Know About Mutual Funds?

Mutual fund is a financial intermediary that allows specific finance organizations to reinvest in different stocks and bonds. Generally, commercial banks act as the broker of such funds.

Savings is a tough deal no doubt, but it seems even tougher when the matter of investment comes into question. In fact we become confused while deciding where and how much to invest. So many choices flicker in our mind. Banks are coming up with many dynamic plans, investment in share market has become very convenient today. Mutual funds are reflecting high returns, insurance companies are offering high returns so on and so forth.

In the last 6 months banks have increased its interest rate against Fixed Deposit (FD) scheme. There has been a competition among banks (private and nationalized) to offer higher rate of interest from FD account. Many people are also speeding up to reach the same. But for me, it’s not a good choice. We can put limited amount of money in it and choose Mutual fund investments for getting higher return.
An effort has been made to clarify on how Mutual Fund investments work in a question-answer set-up. Please don’t hesitate to ask me if any misunderstanding arise.

A Few Questions About Mutual Funds

Why MF is more suitable for the middle class?
In case of Mutual fund investment, the invested money is managed and reinvested by a group of financial experts. So investors don’t worry about further hazards. In the most cases it gives better return too.

What is the difference with share market investment?
In share market investment, one needs to update himself every day, even at every hour in a day. Although share market dealing has become much convenient today; by maintaining his own account, one can transact online from anywhere. But it is the investor who decides which share to purchase, when to sell, etc. So to maintain such business, one needs to devote his valuable time. Thus the whole business bears high risk and moreover, it requires sufficient knowledge about the market, which is not a cup of tea for all of us.
But in case of mutual funds, the entire fund management is done by a group of experts and it’s their job to regularize the things on time. Since the whole responsibility goes to the company itself, investors can glace through the regular update and scoop out the honey on time.

Why we can expect better return compared to other investments?
The biggest advantage is that by pulling money together in a mutual fund, investors purchase stock or bonds of various sectors seeking to bounce back with higher returns. Secondly, the fund is invested in a diversified way. Risk factor is  very low here. So, Bulk investment and well-organized investment by finance experts make a difference as a whole.

How can we choose a particular fund among the huge list before investment? Should we depend on the advisor?
Apart from existing funds, new funds come up at a regular interval. But it’s better to get advice from a consultant / advisor before investment. The advisor assesses the capability of the investor through filling up a form named “Score based Customer Suitability Assessment form” to take better decision. However, there are always options to choose anyone among the list.

How can we know current rates of the funds?
There are two types of mutual funds, i) Open-ended and ii) Locked period. For open-ended schemes, investors can withdraw money anytime if market rates are high. Companies compute NAV once in a day based on closing market prices. NAV (Net Asset Value) is the price of one unit of a fund. Apart from websites, NAV for all funds is available in the leading Newspapers. In case of Locked period schemes, the investor can only redeem funds after the locked period is over. In tihs case, returns are better.

Personal Finance