Mutual Fund Introduction

Mutual Funds are among the hottest favorites with all types of investors. Investing in mutual funds ranks among one of the preferred ways of creating wealth over the long term. In fact, mutual funds represent the hands-off approach to entering the equity market. There are a wide variety of mutual funds that are viable investment avenues to meet a wide variety of financial goals. This section explains the various aspects of Mutual Funds.


What is Mutual Fund and Why Mutual Fund?

Bajaj Capital  A mutual fund is the trust that pools the savings of a number of investors who share a common financial goal.
Bajaj Capital  Anybody with an investible surplus of as little as a few hundred rupees can invest in Mutual Funds.
Bajaj Capital  The money thus collected is then invested by the fund manager in different types of securities. These could range from shares to debentures to money market instruments, depending upon the scheme’s stated objective.
Bajaj Capital  It gives the market returns and not assured returns. Bajaj Capital  In the long term, market returns have the potential to perform better than other assured return products.   Mutual Fund is the one of the most cost efficient financial products.

Advantages of Mutual Funds

Bajaj Capital  Professional Management Bajaj Capital  Diversification Bajaj Capital  Convenient Administration Bajaj Capital  Return potential Bajaj Capital  Low cost Bajaj Capital  Liquidity Bajaj Capital  Transparency Bajaj Capital  Flexibility Bajaj Capital  Choice of schemes Bajaj Capital  Well regulated Bajaj Capital  Tax benefits

How do I make money from a mutual fund?

Bajaj Capital   Capital appreciation:
As the value of securities in the fund increases, the fund's unit price will also increase. There would be capital appreciation when you sell your available units at a price higher than the price at which you bought.
Bajaj Capital  Coupon / Dividend Income:
Fund will earn interest income from the bonds it holds or will have dividend income from the shares.
Bajaj Capital   Income Distribution:
The fund passes on the profits it has earned in the form of dividends
As the value of securities in the fund increases, the fund's unit price will also increase. You can make a profit by selling the units at a price higher than at which you bought. Although - Mutual Fund does not guarantee the same or does not guarantee returns.

How to invest in Mutual Funds, Selection Process- 3 steps

Step 1 Identify your investment needs
Bajaj Capital  What are my investment objectives and needs?
Bajaj Capital  How much risk am I willing to take?
Bajaj Capital  What are my cash flow requirements?
Step 2 Choose the right mutual fund.
Bajaj Capital  The track record of performance over the last few years in relation to the appropriate Benchmark and similar funds in the same category.
Bajaj Capital  How well the mutual fund is organized to provide efficient, prompt and personalized service.
Bajaj Capital  Degree of transparency as reflected in frequency an d quality of their communications.
Step 3 Select the ideal mix of schemes
Bajaj Capital  Investing in just one scheme may not meet all your investment needs.
Bajaj Capital  You may consider investing in a combination of schemes to achieve your specific goals.

Taxation Benefit investing in Mutual Funds

Bajaj Capital  The amount invested in tax-saving funds/Equity Linked Saving Schemes (ELSS) is eligible for deduction under Section 80C upto a limit of Rs.1,50,000/- (in a financial year).
Bajaj Capital  Dividend from Mutual Fund Schemes is Tax-Free in the hands of the Investor/receipient.
Bajaj Capital  Indexation Benefit under Long term Capital Gain in Debt schemes.

Types of risks associated with Mutual Fund Investment

Bajaj Capital  Risk is an inherent aspect of every form of investment. For Mutual Fund investments, risks would include variability, or period-by-period fluctuations in total return.
Bajaj Capital  Market risk: At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. This change in price is due to 'market risk'.
Bajaj Capital  Inflation risk: Sometimes referred to as 'loss of purchasing power'. Whenever the rate of inflation exceeds the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Bajaj Capital  Credit risk: In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?
Bajaj Capital  Interest rate risk: Interest rate movements in the Indian debt markets at times can be volatile leading to the possibility of large price movements up or down in debt and money market securities and thereby to possibly large movements in the NAV.
Bajaj Capital  Other risks associated are:
  Bajaj Capital  Investment risks
  Bajaj Capital  Liquidity risk
   Bajaj Capital  Changes in the government policy