Investors are nowadays getting attracted to invest in equities
, especially retail investors. There are a lot of risks in investing directly in stocks, as there are a lot of chances of losing money. Instead Mutual Funds is a good option to invest safely and get the advantage of the equity markets.
Mutual funds recruit experienced management professionals who have vast experience in investment analysis. They research the profile of the company, future earnings, promoters profile and other factors before taking stake in any particular company.
Some funds may be launched by targeting a particular sectors i.e. blue chip fund, pharma fund, information technology fund. These funds invest money only in particular blue chip companies, pharma companies or information technology companies.
The method of working of mutual funds are:
1. While starting a new fund, each units of the funds are fixed with a particular rate i.e.and the new fund offers are launched for that particular fund.
2. Investors apply for these with a minimum investment ceiling. Entry loads of 2.5% will be charged while buying units for a particular fund. This entry load varies and it is controlled by the finance ministry.
3. Once the investors finishes applying, the units are allotted for the amount paid. These units are allotted in electronic format.
4. The starting value of each unit is called NAV i.e. net asset value.
5. The fund managers than start investing these money in the companies which require liquidity after doing sufficient research.