How to understand & Start Investment in Mutual Fund.

Mutual Fund Introduction:

Mutual Fund is one of the best Trusted Instrument, which is functioning in every country, that pools the savings of a number of investors who share a common financial goal, and investments may be in shares, debt securities, money-market securities, or a combination of these.

  A mutual fund is the most suitable investment scope for common people as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively lower cost.

Structure of Mutual Fund:

• In the Mutual Fund organization, there will be
  1. Sponsor
  2. Trust
  3. Trustee
  4. Asset Management Company (AMC)
  5. Custodian
  6. Registrar and Transfer Agent

1. Sponsor
   • A sponsor is the person who either alone or in association with another corporate body, establishes a mutual fund.
2. Trust
   • The mutual fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the sponsor.
3. Trustee
   • The trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the trustee is to safeguard the interest of the unitholders and inter alias ensure that the AMC functions in the interest of investors
4. Asset Management Company (AMC)
   • The trustee, as the investment manager of the mutual fund, appoints the AMC. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual fund.
5. Custodian
   • A trust company, bank, or similar financial institution, registered with SEBI is responsible for holding and safeguarding the securities owned within a mutual fund. A mutual fund’s custodian may also act as its transfer agent.
6. Registrar and Transfer Agent
   • The registrar and transfer agent also handles communication with investors and updates investor records.

Regulatory Authorities for Mutual Fund:

To protect the interest of investors, SEBI formulates policies and regulates mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. Mutual funds, either promoted by public or by private sector entities including one promoted by foreign entities, are governed by these regulations.

Types of Mutual Funds Schemes:

• Outline of the Schemes
  1. Open-Ended Schemes
     • Open-ended schemes are mutual funds that can issue and retrieves their shares at any time. Open-ended funds do not have restrictions on the number of shares the fund will issue. 
     • Open-ended funds also buy back shares when investors wish to sell. Investors can conveniently buy and sell units of open-ended funds directly from the fund house at the prevalent Net Asset Value (NAV) prices.
  2. Close-Ended Schemes
     • Close-ended schemes are mutual funds with a fixed number of shares (or units). Unlike open-ended funds, new shares/units are not created by managers to meet demand from investors but the shares can only be purchased (and sold) in the secondary market.
  3. Hybrid Schemes
     • Hybrid Schemes are those that combine the features of both open-ended and close-ended schemes. 

Schemes the objective are:

Equity-Oriented Schemes : These schemes normally invest a major part of their portfolio in equities and have comparatively high risks. They provide different options to the investors like dividend option, capital appreciation, etc. and investors may choose one depending on their preferences.

It is future further classified into following, they are: Large-Cap Funds, Mid-Cap Funds, Sector Specific Funds, Thematic, Diversified Equity Funds, Tax Savings Funds (ELSS)

Debt-oriented Schemes: These schemes generally invest in fixed-income securities such as bonds, corporate debentures, Government Securities, and money-market instruments and are less risky compared to equity schemes.

Liquid Funds: These schemes invest exclusively in safer short-term instruments such as Treasury Bills, Certificates of Deposits, Commercial Paper and inter-bank call money, Government Securities, etc. Returns of these schemes fluctuate much less than other funds. 

Fund of Funds Schemes: A Fund of Funds helps the investor to reduce his chances of selecting a fund like Gold Exchange Traded Funds.

Mutual Fund Returns:

Dividends
Unit holders earn dividends on mutual funds.
Capital Gains
Investors get capital gains on mutual funds. If the fund sells securities that have appreciated in value, it earns capital gains.
Profit from higher NAV
Any increase in value of fund’s asset increases the NAV of the fund. Investors can make profit by selling back their units to fund house.

How to start investing in mutual funds for beginners.

Investors have to understand the importance of Mutual Fund in their portfolios. While starting they have to overview the function and activities of the mutual function. Every mutual fund companies, corporate agent, and individual agent they have a norm while coming to the investment first we need to go through the norm carefully.

Inverters, First everyone needs to do self-estimated on their own. while understanding themselves like name, age, income, basic expenses, debt, interest, and so on…

Depend on their self estimation they can come to an idea which categories may suit for them to go future.

Every Investor has their own set of styles while selecting the mutual fund company some may select by their friend suggestion or neighbors suggestion or own interest.

If the suggestion was on their own they may be seen the return of the investment, brand of the company, understand the product of the company. Whatever it may be after selecting the company first understand the norm carefully which is suitable for your interest then go forward.

After selecting their Fund House, Investor have to submit their know your customer(KYC) to open an account in their Found house. After opening an account we have be understand each option available in the Mutual fund house

Basically, we all need is the return what we invert it, we don’t need to lose over principal while moving into the product first understand the return and their type which is suitable for over conveniences.

In entering into the schemes their have to decide which structures are convinced for them like Open-ended schemes, Close-ended schemes, and Hybrid schemes.

After selecting the structure, the investor has their own style of selecting their category which shows their capacity to handle their portfolio. In every category there will be risk and reward depends on which they have been selected.

In selecting the category like Equity, Debt, EFT, FoFs, Liquid, and so on. Every category has its own sub-category (Growth and dividend.) which shows the idea to the investor what will be the results for their investment.

After selecting the all the option available for us we have to decide the duration one of the important in mutual fund, basically the return vary on the duration only.

In short