What Are The Kinds Of Mutual Funds
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When a large amount of money is pooled together and given into the hands of a fund manager, who manages clients' money that have similar financial goals, this is a mutual fund. The investors all invest based on the fact that the risk is spread out due to the fact that there are so many investors. The fund manager essentially invests this money into market instruments like bonds and stocks. Mutual Funds are best known for their value based on the Net Asset Value or NAV as its more commonly known. This is the price of each individual unit of the mutual fund. The NAV is calculated by dividing the total value of the fund by the number of units that the fund has in it currently. Each investor gets a number of units that is coinciding with the amount of cash they have invested into the mutual fund. They then also get returns proportionate to the number of units that they own or hold.
The money that is invested is handled by a fund manager who is usually someone with professional money management skills. The fund manager will invest his skills and time to make your money grow. Evidently, the skills of the fund manager are the most important as at the end of the day he or she is the one who decides where your money goes and how much of it goes into which category. The manager will make these decisions based on a variety of factors such as analyzing local stock performances, watching the global markets movements, FII's movements, general market trends, sectorial trends etc. He will then use this information to invest your money in the right securities which will give you the best returns.
Mutual funds are broadly classified as Open ended funds, Close ended funds and interval schemes. As the name suggests, Open ended funds are those that do not have any maturity period and the investor can buy or sell all through the year from this scheme as he or she so pleases. This type of fund usually is associated with more options of liquidity in the investor's pockets. An Open ended fund will disclose its NAV at the end of every day. A Close ended mutual fund has a specific maturity period and will expire after a stipulated period of time. Investors are allowed to enter or invest in these funds only when the fund is launched. At the time of the initial public issue of the fund, investors can buy or sell the units of the scheme on the stock exchanges where the securities of the fund are listed. Close ended funds disclose NAV on weekly basis. There is a newly launched category of Exchange Traded Funds (ETF) as well. These are the funds that can be traded just like stocks in the regular market.
To invest in a mutual fund, an investor can look at various strategies or methods of investing. They can go for a yearly investment plan or a half yearly one. They can also go for a quarterly plan where they invest every quarter. To keep an investor disciplined there are also systematic investment plans where you invest periodically every month or every two months or so. This is also a type of investing that cuts down your risk factor as mutual funds are all subject to market risk.
The following are the further categorization of mutual funds into the various types that exist: There are Exchange traded funds, Debt and equity funds, gilt funds, monthly income funds and money market funds. An investor must choose the appropriate one for him based on how much risk they are willing to take and how much reward they are expecting in what timeframe.
Article Source: Articlelogy.com
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