Mutual funds

A mutual fund is a combined capital collected from different investors ranging from few thousand to Millions   , the investor can be –

1. Individual person
2. Institutional investor/ banks/ some other large pool of money .

Then the capital Pooled from different sources   is invested in proportion in  company shares, stocks,   bonds, debentures commodities and fixed deposits depending on which fund you choose .

The fund is represented by sharing of funds  by thousands of investors , like stocks have a market value for the funds of all investor  , they have net asset value (nav ) for representing their trade price.

The purpose of mutual fund is the growth in its nav   for which   mutual fund is managed  by expert fund managers , who are professional in this field and are paid with  handsome salaries.  

Advantage of investing in mutual funds

These funds are regulated by the norms of the board of security exchanges’ of their respective countries

1. These  are managed by  professional experts , who has the capacity to beat the market , or they can give you returns, at least chasing index funds return  
2. It gives you opportunity  to invest in different portfolios , in different sectors, balancing your risk
3. Returns are higher than  conventional investing in stock by novices  , and risk are less

Let say capital of 1 lac, if  a novice earn around 5-6 percent return per annum , the can fetch you more than 10-12 percent return annum  , if your fund selection is right.

• They give return far more than normal fixed deposit  returns

• I have seen funds I will be discussing in next article,   that give return more than 15  percent in a year.

• You can invest as much amount as much you can , from  1000 bugs to unlimited

• They provide you tax benefit under income taxes.

• You can   invest in stocks of different countries being part of a mutual funds, since they invest   in international money market also.

1. if you are not  willing  to make a one-time investment, you can invest in smaller and manageable installments called sip, systematic investment plans .                                                                                                                                                                                                        
2. Since, every individual cannot become professional in industry  or work full time , these fund are best source of investment , as they are handled by industry experts.

• They provide liquidity like shares, money in fixed deposits, you can take your money out , by giving your request and funds will be transferred with in two days .

Disadvantage of mutual funds

1. They charge expense or fee annually, varying from .01 percent  – 2 percent of investment , they call it expense fee or operating fees.
2. There is no certainty of profit, as in case of bonds and fixed deposits .
3. Some funds have necessary holding period of 3 years , that provide tax benefits .
4. You cannot choose and pick shares or make portfolio in them, you are in investing in pre determined portfolio.

This statement is taken from investopedia that defines, how reliable and money rich the mutual fund market is these days –

“At the end of 2016, mutual fund assets worldwide were $40.4 trillion, according to the Investment Company Institute.^[6] The countries with the largest mutual fund industries are:

1. United States: $18.9 trillion
2. Luxembourg: $3.9 trillion
3. Ireland: $2.2 trillion
4. Germany: $1.9 trillion
5. France: $1.9 trillion
6. Australia: $1.6 trillion
7. United Kingdom: $1.5 trillion
8. Japan: $1.5 trillion
9. China: $1.3 trillion
10. Brazil: $1.1 trillion’’
11.  

Also in India, there are more than 6 corers owner of mutual fund policy owners

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