The Abc Of Mutual Fund Performance

A mutual fund is an arrangement where investors pool in money under the guidance

of a mutual fund manager, who puts that money to the best interests of the investors. The mutual fund investor trades securities so as to maximize the returns each investor in the mutual fund should get. All those investing in a mutual fund becomes a shareowner of that mutual fund company. Mutual funds are regarded as one of the safest places to invest in, owing to the ease of investment and cost efficiency. Managers of mutual fund companies see to it that they purchase securities at a much lower price as compared to each investor purchasing it individually. The huge pool of fund that is so amassed enables getting securities at a lower price.

A mutual fund investment can be of three distinct types:

Open Ended schemes: Open ended mutual fund investments sell and buy back funds according to the decision of investors. If anyone is willing to buy shares, the company must be willing to issue them and similarly, buy them back at the end of each business day on the net present value computed at the end of that day.

Closed ended funds: In closed ended funds, mutual fund companies issue an IPO, i.e. an initial public offering during which all shares are issued to the public at once. The company is also listed on stock exchange. Investors whove purchased shares of a closed ended fund cannot sell it back to the company till the time the company itself gets terminated. However, an investor can sell his shares in secondary markets at a premium price.

Interval funds: Interval funds act as a sort of intermediary between both the above types of funds, showing traits of both. Stocks of interval funds can be sold-purchased in the stock market without any restrictions. During pre-decided intervals, these stocks can be redeemed as well.

Mutual fund performance is based on the kinds of returns it gives you. The returns are of the following kinds:

The money invested by the mutual fund manager in securities yields returns every year. If the security is in the form of bonds, an interest is received where as if the security is stocks, dividends are received. The mutual fund investment pays dividends and returns to its investors every year.

Mutual funds also sell securities theyve invested in, if the security has increased in value. In case theres a hike in price and the mutual fund registers a profit, it is passed on to all share holders equally depending on their share percentage.

In case your fund manager hasnt sold the securities in spite of a jump in price, the overall value of your mutual fund increases and you can sell your mutual funds at the increased rates.

The best mutual funds in India are those which give you higher returns on lower investments. They also have a minimal risk of closing down and drowning your money. Look out for such reputed companies before investing.

by: messy pen

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