WHAT IS MUTUAL FUND
A Mutual Fund is a trust that pools the savings of a subscribed investors who share a common financial goal. Money collected is invested in capital & Debt market instruments such as shares, debentures, bonds and other securities. The revenue earned through these investments and the capital appreciation realised are shared by its unit holders for the units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an prospects to invest in a diversified, professionally managed basket of securities at a relatively low cost.
ADVANTAGES OF MUTUAL FUNDS
The advantages of investing in a Mutual Fund are:
Professional investment management
Diversification
Service and convenience
Return Potential
Low Costs
High Liquidity
Transparency
Well Regulated
Choice of schemes
Tax benefits
Well regulated
DISADVANTAGE OF MUTUAL FUND
Mutual funds have disadvantages as well, which includes:
Fees
Less control over timing of recognition of gains
Less predictable income
TYPE OF MUTUAL FUND SCHEMES
Basis Liquidity Available – Open Ended Fund and Close Ended Fund
Basis Risk Associated – Debt Fund, Equity Fund, Diversified Fund and Special Fund
Basis Investment Purpose – Growth Fund and Dividend Fund
MUTUAL FUND EXPENSES
The Fund expenses are expenses that a fund charges to its schemes year after year also known as Expenses Ratio. These charges comprises of fund management fee, agent commission, registrar fees and the selling and promotion expenses.
Different funds have different expense ratios. However to keep things in check, the Securities & Exchange Board of India (SEBI) has stipulated an upper limit that a fund can charge. The limit stands at 2.50 per cent for equity funds and 2.25 per cent for debt funds.
Following are some of the major expenses
The Management Fee consists of the Performance Fee, calculated as a percentage of the overall assets.
The Administrative Fee is paid for the administrative services of the fund.
The distribution fee charged for marketing, advertising, and distribution services, ranges from 0.25% to 1.0% of the fund’s assets.
The brokerage cost is an expense that is not included in the expense ratio.
The interest costs, which are incurred if the fund borrows money to buy securities, are also represented in a similar way.
The Transaction fee charged to discourage the traders that might result in the unplanned trading of securities because of sudden change in cash.
Account Maintenance fee is usually charged on small accounts.
Please note that an expense ratio is charged even when the fund’s returns are negative.
Before you invest in a mutual fund, it is imperative that you check out the fund’s expense ratio
Will share more detail on Mutual Fund in my next post
Please feel free to share your thoughts & feedback, would try to include those in my next post
A Mutual Fund is a trust that pools the savings of a subscribed investors who share a common financial goal. Money collected is invested in capital & Debt market instruments such as shares, debentures, bonds and other securities. The revenue earned through these investments and the capital appreciation realised are shared by its unit holders for the units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an prospects to invest in a diversified, professionally managed basket of securities at a relatively low cost.
ADVANTAGES OF MUTUAL FUNDS
The advantages of investing in a Mutual Fund are:
Professional investment management
Diversification
Service and convenience
Return Potential
Low Costs
High Liquidity
Transparency
Well Regulated
Choice of schemes
Tax benefits
Well regulated
DISADVANTAGE OF MUTUAL FUND
Mutual funds have disadvantages as well, which includes:
Fees
Less control over timing of recognition of gains
Less predictable income
TYPE OF MUTUAL FUND SCHEMES
Basis Liquidity Available – Open Ended Fund and Close Ended Fund
Basis Risk Associated – Debt Fund, Equity Fund, Diversified Fund and Special Fund
Basis Investment Purpose – Growth Fund and Dividend Fund
MUTUAL FUND EXPENSES
The Fund expenses are expenses that a fund charges to its schemes year after year also known as Expenses Ratio. These charges comprises of fund management fee, agent commission, registrar fees and the selling and promotion expenses.
Different funds have different expense ratios. However to keep things in check, the Securities & Exchange Board of India (SEBI) has stipulated an upper limit that a fund can charge. The limit stands at 2.50 per cent for equity funds and 2.25 per cent for debt funds.
Following are some of the major expenses
The Management Fee consists of the Performance Fee, calculated as a percentage of the overall assets.
The Administrative Fee is paid for the administrative services of the fund.
The distribution fee charged for marketing, advertising, and distribution services, ranges from 0.25% to 1.0% of the fund’s assets.
The brokerage cost is an expense that is not included in the expense ratio.
The interest costs, which are incurred if the fund borrows money to buy securities, are also represented in a similar way.
The Transaction fee charged to discourage the traders that might result in the unplanned trading of securities because of sudden change in cash.
Account Maintenance fee is usually charged on small accounts.
Please note that an expense ratio is charged even when the fund’s returns are negative.
Before you invest in a mutual fund, it is imperative that you check out the fund’s expense ratio
Will share more detail on Mutual Fund in my next post
Please feel free to share your thoughts & feedback, would try to include those in my next post
No comments:
Post a Comment