Guide Of Mutual Funds

One way of investing available to those interested is Mutual Funds

. These are usually more risk free ways of investing your capital as they make use of a large pool of investors. The investors are taking less risk essentially because there are so many of them in the fund so that the risk is spread out and each individual is not really affected as much. Mutual Funds are usually managed by a fund manager who invests the peoples money based on his own judgment. The overall value of a mutual fund is normally determined by the Net asset Value or the NAV. The NAV is the value of each individual unit of the particular fund. This is determined by dividing the net value of the fund by the number of units that the fund currently has.

A fund manager is a trained professional who usually has many years of experience in managing peoples money. The fund manager will invest the pool of cash in various instruments in the market. He will make these investment decisions based on a variety of factors such as global markets, micro and macro economy, the movement of the local stock markets, trends of various industries, news in the economy and so on. The skills that the fund managers have are of utmost importance because at the end of the day he is the one deciding where to put people's money to make it grow.

Mutual funds are broadly classified as Open ended funds, Close ended funds and interval schemes. As the name suggests, Open ended funds are those that do not have any maturity period and the investor can buy or sell all through the year from this scheme as he or she so pleases. This type of fund usually is associated with more options of liquidity in the investor's pockets. An Open ended fund will disclose its NAV at the end of every day. A Close ended mutual fund has a specific maturity period and will expire after a stipulated period of time. Investors are allowed to enter or invest in these funds only when the fund is launched. At the time of the initial public issue of the fund, investors can buy or sell the units of the scheme on the stock exchanges where the securities of the fund are listed. Close ended funds disclose NAV on weekly basis. There is a newly launched category of Exchange Traded Funds (ETF) as well. These are the funds that can be traded just like stocks in the regular market.

To invest in a mutual fund, an investor can look at various strategies or methods of investing. They can go for a yearly investment plan or a half yearly one. They can also go for a quarterly plan where they invest every quarter. To keep an investor disciplined there are also systematic investment plans where you invest periodically every month or every two months or so. This is also a type of investing that cuts down your risk factor as mutual funds are all subject to market risk.

The following are the further categorization of mutual funds into the various types that exist: There are Exchange traded funds, Debt and equity funds, gilt funds, monthly income funds and money market funds. An investor must choose the appropriate one for him based on how much risk they are willing to take and how much reward they are expecting in what timeframe.

by: Chaitanya Kumar

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