Every now and then while watching television or reading newspaper we stumble upon advertisement involving someone saying that “Mutual funds are right to someone while explaining details about it” but are they really, always right?
Mutual funds are professionally managed investment fund that pools money from many investors to purchase assets (securities). In layman terms it is a fund of money managed by professional Fund Manager. It is a trust that collects money from several investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities. And the income / gains generated from this collective investment is distributed proportionately among 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 many investors is what makes up a Mutual Fund.
Just like Share Market where each share has a base value mutual funds also have Net Asset Value which is calculated based on the assets the funds house posses which are calculated as share and since mutual funds house. The NAV is the combined market value of the shares, bonds and securities held by a fund on any particular day (as reduced by permitted expenses and charges). NAV per Unit represents the market value of all the Units in a mutual fund scheme on a given day, net of all expenses and liabilities plus income accrued, divided by the outstanding number of Units in the scheme. NAV is always changing depending on the factors like market and other factors like economy and types of funds mutual funds house is holding.
Mutual funds invest money of investors in various fields and sectors including share market and hence reducing the risk of direct loss. Mutual funds are ideal for investors who either lack large sums for investment, or for those who neither have the inclination nor the time to research the market yet want to grow their wealth. The money collected in mutual funds is invested by professional fund managers in line with the scheme’s stated objective. In return, the fund house charges a small fee which is deducted from the investment. The fees charged by mutual funds are regulated and are subject to certain limits specified by the Securities and Exchange Board of India (SEBI). lack of awareness among Indians has made mutual funds a less preferred investment avenue.
Mutual funds offer multiple product choices for investment across the financial spectrum. As investment goals vary – post-retirement expenses, money for children’s education or marriage, house purchase, etc. – the products required to achieve these goals vary too.
But saying mutual funds is a absolute win is not being honest, of course anything that has so many benefits has downsides too. Since the basic principle behind mutual funds is investment hence there is always a risk of loss like for example suppose the funds house diversified investment and even then, suffered loss then return investor will get will also be less.
Hence they always add “Mutual funds are subject to market risk please read all scheme related documents carefully.