MUTUAL FUNDS INVESTMENT

At present Investment in Mutual Funds is really good option for the investors in India Apart from the many advantages that investing in mutual funds provide like diversification professional management the ease of investment process has proved to be a major enabling factor However with the introduction of innovative products the world of mutual funds nowadays has a lot to offer to its investors With the introduction of diverse options investors needs to choose a mutual fund that meets his risk acceptance and his risk capacity levels and has similar investment objectives as the investor. Mutual funds simply are a method through which people invest. People often asking, "What are mutual funds paying?" The truth is that mutual funds don't pay anything! People also say, "I don't like mutual funds because they're risky." But there's no such thing as a "risky" fund. Nor has anyone ever lost money in a mutual fund. Mutual funds are not good, and they're not bad.

A mutual fund, in fact, is merely a mirror a reflection of something else. Thus, if you invest in a mutual fund that invests in stocks, and you are as likely to make money or lose money as any other person who invests in stocks.

In fact, you can use mutual funds to buy virtually any kind of investment: stocks, bonds, government securities, real estate, gold and other precious metals, international securities, foreign currencies, natural resources, even hedge positions and money markets. You can find funds that engage in virtually any type of trading activity, including options and futures contracts, derivatives, and even selling short.

Investors needs to evaluate and consider various factors before making an investment decision Since not everyone has the time or inclination to invest and do the analysis himself the job is best left to a professional Since Indian economy is no more a closed market and has started integrating with the world markets external factors which are complex in nature affect us too Factors such as an increase in shortterm US interest rates the hike in crude prices or any major happening in Asian market have a deep impact on the Indian stock market Although it is not possible for an individual investor to understand Indian companies and investing in such an environment the process can become fairly time consuming Mutual funds whose fund managers are paid to understand these issues and whose Asset Management Company invests in research provide an option of investing without getting lost in the complexities

Mutual funds provide risk diversification diversification of a portfolio is amongst the primary tenets of portfolio structuring and a necessary one to reduce the level of risk assumed by the portfolio holder Most of us are not necessarily well qualified to apply the theories of portfolio structuring to our holdings and hence would be better off leaving that to a professional Mutual funds represent one such option

Moreover Evaluate past performance look for stability and although past performance is no guarantee of future performance it is a useful way to assess how well or badly a fund has performed in comparison to its stated objectives and peer group A good way to do this would be to identify the five best performing funds within your selected investment objectives over various periods say 3 months 6 months one year two years and three years Shortlist funds that appear in the top 5 in each of these time horizons as they would have thus demonstrated their ability to be not only good but also consistent performers

The following criterias can be choosen by an investor according to his investment objective

Thorough analysis of fund performance of schemes over the last few years managed by the fund house and its consistent return in the volatile market

The fund house should be professional with efficient management and administration

The corpus the fund is holding in its scheme over the period of time

Proper adequacies of disclosures have to seen and also make a note of any hidden charges carried by them

The price at which you can enter exit i e entry load exit load the scheme and its impact on overall return

How to start investing in mutual funds

You dont need to have a lot of money to start investing Thats a pretty erronous belief The answer I often come across on investment queries is I dont have money to invest This answer often is the start of your investment needs You dont have money so you need to make whatever you have work

Take for example you save 100 units I am loathe to put any currency every month That makes it 1200 units every year Lets say you are putting it in an instrument bank deposit that gives 5% annually At the end of 5 years you are getting something like 6830 units

Suppose there was an instrument that gave you 15% You know the amount you will make 8970 units A cool disposable income of 2000 units

The next question is who will give that kind of money return Mutual Funds well researched stocks have given that kind of return and more Do you know that markets in Brazil India China have given returns in excess of 40% conservative in the last year And its not a single year episode These kind of returns have been seen for the past 45 years To ride these growth markets a plethora of country specific mutual fund schemes have arisen So investing is a global phenomena And if you are from these nations your choice becomes wider Even certain sectoral funds aggressive funds have maintained a high rate of return

So how do you jump unto the bandwagon so to say You dont happen have too much idea of stocks returns markets etc and naturally you dont want too many risks So mutual funds become your natural choice Mutual Funds diversify your risk puts your money in many companies eggs in many baskets so to say you can invest small you get the benefits of professional research every stock that a mutual fund puts its money in is researched by a team of professional fund managers and professional fund management services its mostly liquid ie you can put your hands on your money whenever you want it The best way to start investing in a mutual fund is through a Systematic Investment Plan SIP It means just that You invest small amounts systematically in a fund scheme of your choice

Here are some easy steps to start investing

1 Decide how much you can save in a monthEven if you dont have money to invest you must be saving something

2 Find a financial advisor She he will guide you on the schemes

3 Research on the scheme suggested on the internet Follow some basic principles see the pedigree of the fund house see the pedigree of the scheme like last 35 yrs performance see the other schemes the fund manager is managing the corpus of the scheme ie the total amount of money in that scheme

4 Stick to your small investment amount till you are comfortable investing ie dont let the advisor sweet talk you into putting in more

5 See the liquidity of the scheme ie whether you can withdraw your money whenever you want and if any cost load involved

6 Bingo you can start your SIP systematic investment plan and be on your way to investment riches Remember SIPs in equity mutual funds are your first tentative steps into the stock market and eventual unimaginable riches

Please dont treat this as a comprehensive investment compendium its just a small nudge towards making your savings more effective

Why you invest your money A simple question but your reasons why can vary from paying for college financial security starting a family buying a home large future expense changing jobs building wealth or retirement Whatever your financial goals are there are two really great reasons why you should start investing your hardearned money as soon as possible

The cost of products and services such as housing education retirement transportation and medical keeps increasing

These increases have been continuously outpacing the average savings rate forcing people to invest for higher returns besides saving money in a bank account Those who dont invest fall even farther behind every year that goes by Note A typical savings accounts barely keep up with inflation and can result in very small returns of less than 1% after factoring in the inflation rate

Time can be your best friend or your worst enemy

If you start investing early time is on your side If you procrastinate time becomes an unavoidable enemy of compounding your money and can dramatically effect your outcome

What you have to do if you start investing and want to retire at 65 with one million dollars Lets run through some examples by saying you started investing at some different timeframes in your life 25 35 45 and 55 Along with the starting age the average yearly return is another important variable The different yearly returns that we were able to get an 8% 10% or 12% return on your investments per year

Your wealth not only be measured by equities but depend on your ability to generate positive cash inflows

I think you dont like idle money if you have a little freedom of your financial money Increase your wealth by the investment that possible to create cash inflow Do not invest your money in bad business sector which result negative cash inflows

People invest their money for several different reasons You may want to save money for retirement your childs education or to one day own your own home Regardless of your purpose for investing you need to understand the basic forms of investments available to you i e stocks mutual funds and bonds

Companies sell stock to raise capital money for growth When you buy a companys stock you are purchasing partial ownership of that company because you now own a percentage of the companys shares For example if a company had 10 000 shares of stock outstanding and you bought 1 000 shares then you would own 10 percent of the company and be entitled to 10 percent of the companys assets

Purchasing stock is a way to invest in a single company The value of your shares rises and falls with the performance of that company This type of investment can be rewari ding if the companys value skyrockets However bankruptcy low earnings and other factors can cause the stock value to plummet Certain companies pay stockholders dividends a portion of the companys earnings in cash or stock. Mutual funds are good investment option if you are looking to meet your financial goals. The best part about mutual funds is that they are managed by investment professionals and the risk involved reduces as the funds invested in the mutual funds get diversified.

A company dealing in mutual funds invests your money in a variety of bonds, stocks, assets, securities and many other short term investment instruments. You will earn dividends when a mutual fund earns profit and on the other hand, the value of your shares will decrease if the mutual fund company faces a loss. Usually a professional investment manager will do all the buying and selling on your behalf to ensure that you get the best returns for your investments.

There are different types of mutual funds, namely equity funds, fixed income funds and balanced funds.

Equity funds involve just common stock investments. They are extremely risky but can end up earning you a lot of money. Fixed income funds are government and corporate securities. Fixed income funds offer fixed returns and the risk associated with these funds is very low. Balanced mutual funds are a combination of bonds and stocks. These funds have a very low risk factor but your investment will not earn a lot of returns.Mutual fund shares can be purchased either through the mutual fund company or from a broker. The mutual fund share is bought at the net asset value of the fund. This is the price you have to pay when you buy a mutual fund share and it includes the shareholder's fee. Mutual funds are managed by investment professionals who are trained for this kind of job. They will do research on the investment type, select your securities and monitor individual funds. Having a good fund manager will usually ensure that you get rich. Your fund manager will invest in number of companies in different industries, thereby diversifying your investment.