WHAT IS A MUTUAL FUND?
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 realized by the scheme. And the income is 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. Because, it offers an opportunity to invest in a diversifies, professionally managed basket of securities at a relatively low cost.
TYPES OF MUTUAL FUND SCHEMES
There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectations. Whether as the foundation of your investment programme or as a supplement, Mutual Fund schemes can help you meet your financial goals.
These do not have a fixed maturity. You deal directly with the Mutual Fund for your investments and redemptions. The key feature is liquidity. You can conveniently buy and sell your units at Net Asset Value ( “NAV’’) related prices.
Schemes that have a maturity period (ranging from 2 to 15 years). So, these schemes are called close-ended schemes. You can invest directly in the scheme at the time of the initial issue. And thereafter you can buy or sell the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchange could vary from the scheme’s NAV on account of demand and supply situation, unitholders’ expectations and other market factors. One of the characteristics of the close-ended schemes is that they are generally traded at a discount to NAV. But closer to maturity, the discount narrows.
Some close-ended schemes give you an additional option of selling your units directly to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations ensure that at least one of the two exit routes are provided to the investor.