Mutual fund Basics and Definition
A mutual fund is a financial intermediary that allows a large number of investors to pool their money together with a predetermined investment objective. The pooled money will be invested into specific securities(usually stocks or bonds) by the fund manager. When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (you don't have to figure out which stocks or bonds to buy). By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification. They offer regular investors a chance to diversify their portfolios, which is something they may not be able to do on their own.
There are different kinds of mutual funds to cater to varied investment objectives: Growth Funds, Income Funds, Balanced Funds, and Liquid Assets Funds, also known as Money Market Funds. Having explained mutual funds lets see the different types of mutual fund.
Types of Mutual fund
Mutual fund can be classified into the following two categories:
a. MF according to Maturity Period
Depending on the maturity period, there are two basic types of mutual funds. Open-ended mutual funds and Closed-ended mutual funds
Open ended mutual fund
"Open-ended" or "Open" mutual funds are the most common type of mutual funds in which Investors may purchase units from the fund sponsor or redeem units at the valuation promised in the fund documents, usually on a daily basis. An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous basis. These Funds do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.
Closed ended mutual fund
"Closed-ended" or "Closed" mutual funds are traded as financial securities, once they are issued, and holders must sell their units on the stock market to receive their funds back. A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.
a. MF according to Investment Objective
Based on investment objective the fund can be classified as follows:
Equity Funds
Equity funds or Growth funds invest a major part of their corpus in equities. The composition of the fund may vary from scheme to scheme and the fund manager’s outlook on various scrips. The Equity Funds are sub-classified depending upon their investment objective, as follows:
- Diversified Equity Funds
- Mid-Cap Funds
- Sector Specific Funds
- Tax Savings Funds (ELSS)
Debt Funds
Debt fund is also known as income fund. The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.
These Funds invest a major portion of their corpus in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:
- Gilt Funds: Invest their corpus in securities issued by Government, popularly known as GoI debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.
- Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.
- MIPs: Invests around 80% of their total corpus in debt instruments while the rest of the portion is invested in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.
- Short Term Plans (STPs): Meant for investors with an investment horizon of 3-6 months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.
- Liquid Funds: Also known as Money Market Schemes, These funds are meant to provide easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.
Balanced Funds
These funds, as the name suggests, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns.
Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.
Top Fifteen Mutual Funds
Following is the list of top fifteen mutual funds for the last one year. The ranks are based on the Mutual funds performance in the last year. The mutual funds ratings displays the top mutual fund companies during the last year.
Rank: 1
MF Name: Reliance Diversified Power Sector Fund - Growth
NAV (Rs.): 66.96
Last 12 Months %: 65.95
Since Inception: 59.88
Rank: 2
MF Name: DWS Investment Opportunity Fund - Growth
NAV (Rs.): 37.06
Last 12 Months%: 50.52
Since Inception: 35.27
Rank: 3
MF Name: Reliance Regular Savings Fund - Equity - Growth
NAV (Rs.): 23.54
Last 12 Months%: 44.28
Since Inception: 33.14
Rank: 4
MF Name: DBS Chola Opportunities Fund - Cumulative
NAV (Rs.): 42.38
Last 12 Months%: 43
Since Inception: 14.71
Rank: 5
MF Name: Standard Chartered Premier Equity Fund - Growth
NAV (Rs.): 21.77
Last 12 Months%: 42.66
Since Inception: 33.82
Rank: 6
MF Name: ICICI Prudential Infrastructure Fund - FII Growth
NAV (Rs.): 15.2
Last 12 Months%:
Since Inception: 21.49
Rank: 7
MF Name: UTI Gold Exchange Traded Fund
NAV (Rs.): 1279.55
Last 12 Months%: 40.88
Since Inception: 21.08
Rank: 8
MF Name: Gold BeES
NAV (Rs.): 1276.57
Last 12 Months%: 40.72
Since Inception: 26.15
Rank: 9
MF Name: ICICI Prudential Infrastructure Fund - Growth
NAV (Rs.): 28.64
Last 12 Months%: 40.41
Since Inception: 45.52
Rank: 10
MF Name: Canara Robeco Infrastructure Fund - Growth
NAV (Rs.): 20.57
Last 12 Months%: 38.93
Since Inception: 33.47
Rank: 11MF
Name: Sundaram BNP Paribas SMILE Fund - Growth
NAV (Rs.): 25.77
Last 12 Months%: 37.18
Since Inception: 33.33
Rank: 12
MF Name: BOB Growth Fund - Growth
NAV (Rs.): 43.61
Last 12 Months%: 36.13
Since Inception: 36.8
Rank: 13
MF Name: Taurus Discovery Stock
NAV (Rs.): 23.34
Last 12 Months%: 36.1
Since Inception: 9.94
Rank: 14
MF Name: DWS Alpha Equity Fund - Growth
NAV (Rs.): 72.68
Last 12 Months%: 36.01
Since Inception: 44.93
Rank: 15
MF Name: Tata Infrastructure Fund - Growth
NAV (Rs.): 33.86
Last 12 Months%: 35.26
Since Inception: 42.2
No comments:
Post a Comment