Mutual Funds are a better option for those persons who do not want to go into the intricacies of the stock market and wish to earn a reasonable income on their investments of hard earned money. It is also important to exit, at the right moment and in the right manner, for those who are investing long term in equity-backed mutual funds for meeting the financial goals of their lives. After investing in mutual funds investor should have the patience to wait for a period of one year to one and a half year and thereafter after observing gains in the net asset value (NAV) of the fund, investments should be gradually moved to Debt Fund category or to the Bank accounts. Redemption is as important as investment because the objective is the growth of the capital. In principle money should be moved to a less volatile investment a year or so before it is to be used.
A Mutual Fund is a professionally-managed investment scheme, with a pool of money from numerous investors, usually run by an asset management company. Mutual Fund’s investments are chosen and monitored by qualified professionals who use this money to create a portfolio that consists of stocks, bonds, money market instruments or a combination of those. Investors can buy Mutual Fund Units, which basically represent share of holdings in a particular scheme. These units can be purchased or redeemed as needed at the current Net Asset Value (NAV) of Mutual Fund (MF). NAVs keep fluctuating, according to the MF’s holdings. So, each investor participates proportionally in the gain or loss of the MF. All the MFs are registered with SEBI. They function within the provisions of strict regulation created to protect the interests of the investor. The biggest advantage of investing through a MF is that it gives small investors access to professionally-managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult to create with a small amount of capital.
Unit Trust of India (UTI) was launched by Government of India in 1963 and that introduced the first Mutual Fund in the country. UTI enjoyed virtual monopoly in the Indian MF market until 1987 where after State Bank of India, Canara Bank and Punjab National Bank established their MFs. Economic Reforms opened MF market to private players in 1993, with Kothari Pioneer being the first Private Sector MF to operate in India which later merged with Franklin Templeton, Securities Exchange Board of India (SEBI) the Capital Market regulator formulated a comprehensive regulatory framework for Mutual Funds in 1996.
Investors own shares of MFs and not the individual securities, they invest small amounts of money and can benefit from being involved in a large pool of cash invested by other people. All shareholders share in the MFs gains and losses on an equal basis, proportionately to the amount they have invested. By investing in mutual funds Investor’s portfolio is diversified across a large number of securities so as to minimize the risk of fluctuation in individual securities in the MFs portfolio.
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