foi - mutual funds

7/29/2019 Foi - Mutual Funds

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MUTUAL FUNDS

SUBMITTED

BY :SONICAGUPTA

B.COM (Hons)


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A mutual fund is a type of professionallymanaged collective investment vehicle that poolsmoney from many investors topurchase securities. While there is no legal definition of the term "mutual fund", it is most commonly applied onlyto those collective investment vehicles that are regulatedand sold to the general public. They are sometimesreferred to as "investment companies" or "registered

investment companies."A mutual fund is a company that pools money from manyinvestors andinvests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or somecombination of these investments. The combined holdingsthe mutual fund owns are known as itsportfolio. Each share represents an investorsproportionate ownershipof the funds holdings and the income those holdingsgenerate.


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Mutual funds have advantages compared todirect investing in individual securities. Theseinclude: Increased diversification Daily liquidity Professional investment management

Ability to participate in investments that may beavailable only to larger investors Service and convenience Government oversight Ease of comparison

Mutual funds have disadvantages as well,which include: Fees Less control over timing of recognition of gains Less predictable income No opportunity to customize


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3/13/13CHARACTERISTICS OF FUNDSSome of the traditional, distinguishing characteristicsof mutual fundsinclude the following:

Investors purchase mutual fund shares from the fund itself (orthrougha broker for the fund) instead of from other investors on asecondarymarket,such as the New York Stock Exchange or Nasdaq Stock

Market.

The price that investors pay for mutual fund shares is thefunds per sharenet asset value (NAV) plus any shareholder fees that the fundimpose satthe time of purchase (such as sales loads).

Mutual fund shares are redeemable, meaning investors cansell theirshares back to the fund (or to a broker acting for the fund).

Mutual funds generally create and sell new shares to


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ADVANTAGES ANDDISADVANTAGES

Every investment has advantages anddisadvantages. But its importantto remember that features that matter toone investor may not be important to you.

Whether any particular feature is anadvantage for youwill depend on your unique circumstances.


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Professional Management Professionalmoney managers research,select, and monitor the performance of thesecurities the fund purchases.

Diversification Diversification is an investingstrategy that can beneatly summed up as Dont put all your eggs in

one basket. Spreadingyour investments across a wide range of companies and industry sectorscan help lower your risk if company or sector fails.Some investors findit easier to achieve diversification through

ADVANTAGES


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Costs Despite Negative Returns Investorsmust pay sales charges,annual fees,and other expenses (which we discussin detail on page 13)regardless of how the fund performs. And,

depending on the timing of Their investment, investors may also have to paytaxes on any capital gainsdistribution they receiveeven if the fund went onto perform poorlyafter they bought shares.

Lack of Control Investors typically cannotascertain the exact make-up

Of a funds port folio at any given time ,nor can

DISADVANTAGES


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HOW FUNDS CAN EARN MONEY FOR YOU

You can earn money from yourinvestment in three ways:

1. Dividend Payments A fund mayearn income in the form of dividends and interest on the securitiesin its portfolio. The fundthen pays its shareholders nearly all of the income (minus disclosedexpenses) it has earned in the form of dividends.


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BY STRUCTURE

OPEN ENDED These are schemes that do not have a fixedmaturity. The mutual fund ensures liquidity byannouncing sale and repurchase price for the unitof an open-ended fund.

CLOSE ENDED These are schemes that have a fixed maturity. The money of the investor is locked in for the

period. Occasionally, closed-end schemes providea re-purchase option to the investors, either for a

TYPES OF INVESTMENT


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BY INVESTMENT OBJECTIVE

EQUITY SCHEMES

DEBT OR INCOME SCHEMES

MONEY MARKET SCHEMES

HYBRID SCHEMES


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3/13/13Equity schemes primarily invest inshares. Based on the objective investmentscould be in growth stocks where earningsgrowth is expected to be high or valuestocks where the view of the fund manageris that current valuations in the markets do

not reflect the intrinsic value. Various kindsof equity schemes are:Equity Diversified:All non-theme and non-sector funds can beclassified as equity diversified funds.Mid Cap:These funds invest in companies from

different sectors. However they put a


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DEBT OR INCOME SCHEMES

Such a fund invests in interestbearing securities mainly

government securities andcorporate bonds. This fund earnsreturns for its investors from

interest income on its investmentsand profits on trading securities. Interms of risk, this type of fund isthe least risky.


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HYBRID SCHEMES

Balanced Schemes :

Balanced schemes invest in amix of equity and debt. Thedebt investments ensure a

basic interest income, whichthe fund manager hopes totop with a capital gain from

the investment in equities.


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foi - mutual funds

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