|
CONCEPT
A Mutual Fund is a trust that pools the savings of a number of
investors who share a common financial goal. The money thus collected
is then invested in capital market instruments such as shares,
debentures and other securities. The income earned through these
investments and the capital appreciation realised 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. The flow chart
below describes broadly the working of a mutual fund:
Mutual Fund
Operation Flow Chart
ORGANISATION OF A MUTUAL FUND
There are many entities involved and the diagram below illustrates the
organisational set up of a mutual fund:
Organisation of a Mutal Fund
ADVANTAGES OF MUTUAL FUNDS
# The advantages of investing in a Mutual Fund are: Professional
Management
# Diversification
# Convenient Administration
# Return Potential
# Low Costs
# Liquidity
# Transparency
# Flexibility
# Choice of schemes
# Tax benefits
# Well regulated
TYPES OF MUTUAL FUND SCHEMES
Wide variety of Mutual Fund Schemes exist to cater to the needs such
as financial position, risk tolerance and return expectations etc. The
table below gives an overview into the existing types of schemes in
the Industry.
FREQUENTLY USED TERMS
Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus
its liabilities. The per unit NAV is the net asset value of the scheme
divided by the number of units outstanding on the Valuation Date.
Sale Price
Is the price you pay when you invest in a scheme. Also called Offer
Price. It may include a sales load.
Repurchase Price
Is the price at which a close-ended scheme repurchases its units
and it may include a back-end load. This is also called Bid Price.
Redemption Price
Is the price at which open-ended schemes repurchase their units
and close-ended schemes redeem their units on maturity. Such prices
are NAV related.
Sales Load
Is a charge collected by a scheme when it sells the units. Also
called, ‘Front-end’ load. Schemes that do not charge a load are called
‘No Load’ schemes.
Repurchase or ‘Back-end’Load
Is a charge collected by a scheme when it buys back the units from
the unit holders. |
