MODULE 3. MUTUAL FUNDS
mutual Fundx: Cleaning and Features of mutual Fundx, History of Mutual Funds in India, Benefits
and drawbacks of investment in mutual l'tmd ; Major Fund Houses in India and Types of Mutual
Fund ilchenies and plans; SIP, STP, SWP of mutual fund; Net Axset Value- simple problems.
Concept and background on Mutual Funds
A mutual fund is a pool of money managed by a professional Fund Manager. It is a trust
that collects money from a number of investors who share a common investment
objective and invests the same in equities, bonds, money market instruments anal/or other
securities.
WHAT ARE MUTUAL FUNDS?
A mutual fund is a pool of money managed by a professional Fund Manager.
It is a trust that collects money from a number of investors who share a common
investment objective and invests the same in equities, bonds, money market instruments
and/or other securities.
income / gains generated from this collective investment is distributed proportionately
amongst the investors after deducting applicable expenses and levies, by calculating a
scheme’s “Net Asset Value” or NAV. Simply put, the money pooled in by a large
number of investors is what makes up a Mutual Fund.
Meaning of Mutual Fund :
Mutual fund is a financial instrument that pools money from different investors. The
pooled money is then invested in securities like stocks of listed companies, government
bonds. corporate bonds, and money market instruments.
Advantages of Investing in Mutual Funds
There are over 5000 mutual funds in different categories to meet the objectives of all
types of investors. The right mix of growth, income, and safety makes mutual funds
suitable for everyone.
FEIA Page 1
, Below are the advantages of investing in mutual funds:
1. Expert Money Management
Your pooled money is managed by a team of experts. So, you have the advantage of
expert guidance in creating wealth. The fund manager does meticulous research in
deciding equities, sectors. allocation, and of course the buy and sell.
2. Low Cost
If you calculate the benefits of expertise. diversity. and other options of return, then
mutual funds are definitely a very cost-effective instrument of investment.
There is a regulatory cap of 2.ñ% on the expense ratio.
3. SIP Option
Systematic Investment Plan gives you the flexibility to invest at an agreed interval which
could be weekly. monthly. quarterly. You can start investing in mutual funds with an
amount as low as Rs. 500.
4. Switch Funds
If you are not happy with the performance of a particular mutual fund scheme. then some
mutual funds do offer you an option to switch funds. However. you need to be very
cautious while opting to switch.
5. Diversification
Mutual funds offer you the benefit of diversification in such asset classes which
otherwise isn't possible for an individual investor. You reap the dividend of maximum
exposure with minimum risk.
6. Ease of Investing and Redemption
Now, it is pretty easy to buy. sell, and redeem fund units at NAV. Just place the
redemption request and you will q•et your money in the desired bank account within a few
days.
7. Tax Benefit
Under the ELSS, tax-saving mutual fund you have the double benefit of tax saving and
wealth creation. Under Section 80C of the Income Tax Act, you can have a deduction of
a maximum of Rs. 1. 50,000 a year.
FEIA Page 2
mutual Fundx: Cleaning and Features of mutual Fundx, History of Mutual Funds in India, Benefits
and drawbacks of investment in mutual l'tmd ; Major Fund Houses in India and Types of Mutual
Fund ilchenies and plans; SIP, STP, SWP of mutual fund; Net Axset Value- simple problems.
Concept and background on Mutual Funds
A mutual fund is a pool of money managed by a professional Fund Manager. It is a trust
that collects money from a number of investors who share a common investment
objective and invests the same in equities, bonds, money market instruments anal/or other
securities.
WHAT ARE MUTUAL FUNDS?
A mutual fund is a pool of money managed by a professional Fund Manager.
It is a trust that collects money from a number of investors who share a common
investment objective and invests the same in equities, bonds, money market instruments
and/or other securities.
income / gains generated from this collective investment is distributed proportionately
amongst the investors after deducting applicable expenses and levies, by calculating a
scheme’s “Net Asset Value” or NAV. Simply put, the money pooled in by a large
number of investors is what makes up a Mutual Fund.
Meaning of Mutual Fund :
Mutual fund is a financial instrument that pools money from different investors. The
pooled money is then invested in securities like stocks of listed companies, government
bonds. corporate bonds, and money market instruments.
Advantages of Investing in Mutual Funds
There are over 5000 mutual funds in different categories to meet the objectives of all
types of investors. The right mix of growth, income, and safety makes mutual funds
suitable for everyone.
FEIA Page 1
, Below are the advantages of investing in mutual funds:
1. Expert Money Management
Your pooled money is managed by a team of experts. So, you have the advantage of
expert guidance in creating wealth. The fund manager does meticulous research in
deciding equities, sectors. allocation, and of course the buy and sell.
2. Low Cost
If you calculate the benefits of expertise. diversity. and other options of return, then
mutual funds are definitely a very cost-effective instrument of investment.
There is a regulatory cap of 2.ñ% on the expense ratio.
3. SIP Option
Systematic Investment Plan gives you the flexibility to invest at an agreed interval which
could be weekly. monthly. quarterly. You can start investing in mutual funds with an
amount as low as Rs. 500.
4. Switch Funds
If you are not happy with the performance of a particular mutual fund scheme. then some
mutual funds do offer you an option to switch funds. However. you need to be very
cautious while opting to switch.
5. Diversification
Mutual funds offer you the benefit of diversification in such asset classes which
otherwise isn't possible for an individual investor. You reap the dividend of maximum
exposure with minimum risk.
6. Ease of Investing and Redemption
Now, it is pretty easy to buy. sell, and redeem fund units at NAV. Just place the
redemption request and you will q•et your money in the desired bank account within a few
days.
7. Tax Benefit
Under the ELSS, tax-saving mutual fund you have the double benefit of tax saving and
wealth creation. Under Section 80C of the Income Tax Act, you can have a deduction of
a maximum of Rs. 1. 50,000 a year.
FEIA Page 2
