A Brief Explanation About Mutual Fund Investments

To begin with, a mutual fund is a professionally managed firm of collective investments that pools money from many investors and invests it in stocks, bonds, shares, etc. It pools the savings of a number of investors with common financial goals.

How does it work? Consider a group of investors who pool their money collectively with a fund manager, who in turn invests it in what he thinks are the best of securities, bonds, shares, debentures, and stocks. These securities, bonds, debentures, stocks, and shares in turn generate returns which are then passed back to the investors. One notices that this process is a whole circle and ends where it originally started.

The term 'mutual fund' was first coined in the year of 1963 but only picked up from the year 1987 when bigger players entered the industry and started pooling their resources. Research suggests that mutual fund investments are one of the best ways to invest a person's money and is also one of the most popular ways today.

Based on the structure, there are three kinds of mutual funds:
• Open-ended funds
• Close-ended funds
• Interval funds

Based on the investment objective, there are four kinds of mutual funds:
• Growth funds
• Income funds
• Balanced funds
• Money market funds

Other schemes include tax saving schemes, index funds, special schemes, and sector specific schemes.

The working of a mutual fund is done in two ways. Suppose the amount one wants to invest is Rs. 50,000/- in the lump sum or the one-time payment method, then the Rs. 50,000/- will be put in at one shot. In the Systematic Investment Plan (SIP), one invests money on a monthly basis. Thus, the Rs. 50,000/- can be invested over 10 months, making the per month investment Rs. 5,000/-

There can be several reasons to invest in it. The first reason is for liquidity. Thus, if one decides to liquidate one's shares in the fund, one can easily do so. By just letting one's broker know that one wants to sell his/her shares, it can easily be done at the end of the trading day. Diversification is also one of the primary reasons to invest in it. Instead of investing in one particular share, one can invest in several different ones and thus diversify one's portfolio. As an individual, it is unlikely that one will be able to diversify one's portfolio enough as the amount of capital needed will be too large. By investing in a mutual fund, one is taking advantage of the ability to pool one's funds together with those of others.

Birla Sunlife Mutual Fund NFO - How to Find?

The Aditya Birla is a reputed group of industrialist in India. They launch various schemes at different times of the year so that this in turn can generate huge profit and the investors can benefit from it. Currently, the Birla is offering its New Fund Offer in the form of Sunlife Mutual fund.

The main purpose of this scheme is to generate income for the investors by investing in a small portfolio. This portfolio is generally the securities from the fixed income and it is done in such a way so that it matures in line with that of the duration of the nfo scheme.

The face value of any scheme is Rs 10 per unit. The main intention of this scheme is to collect a subscription with a minimum amount of Rs 10 crore under any particular scheme. The fund manager in charge of the nfo would allocate about 100% of the total assets in either debt securities or equities as well as in the instruments of the money market with a profile which has low to medium risk or high risk.

Different Instruments of Money Market:

The different instruments that are used in the nfo scheme include commercial bills and papers, treasury bills and even some government securities.

Where to Find?

Currently, the internet offers plenty of options by means of which all your tasks can become easier. There are innumerable websites in the internet where you would possibly find information on the new fund offer of mutual fund from the Birla Sunlife. You can also find information on the official website of the Birla along with all the rules and procedures through which you can make the investment. This is a great fund for making investment and in turn generating income. Therefore you can definitely go for it.

Canara Robeco Equity Tax Saver Fund

With the increased income of people, tax-paying has become one of the greatest headaches. Therefore different funds are being launched so as to help people in saving their money from paying in to the tax. Among the different fund organizations, the canara robeco equity tax saver fund is one.

Objective:

The canara robeco equity tax saver fund has been designed in such a way so that it can provide long term appreciation of capital by making investments in the equity market. As the name indicates, it is a fund that helps to save the tax and aims to invest in those companies which are fundamentally quite strong. Consequently, investment in the strong companies helps to create a good opportunity for appreciation especially in the long run. Currently, this fund is quite popular throughout India and there are large numbers of people who are investing in this fund to save their money from taxes.

Operations of the Fund:

This scheme of the tax saving is operating quite well. It has been giving consistent performance especially in terms of the returns since the last 5 years. The benchmark for this scheme is BSE 100 index. Studies say that this tax saving fund enjoys 5 star rating from the present customers who have immensely benefited by investing their money in this scheme.

How to Invest?

Investing in the equity tax saver fund is not very difficult. You can log in to the related website of the organization whereby you would get all the details in relation to the mode of investment. A form would also be available which you can download absolutely free of cost. You can start filling out the form on the basis of the instructions. However, before making investment, it would be wise on your part to know about the different kinds of funds. Once you are well aware of these, it would become easy for you to start making the investment. So what are you waiting for? Just start right away and save your money from making payment in the tax.

How to Diversify When Investing in Mutual Funds

Diversification means investing in a variety of investments. As the saying goes "Don't put all your eggs in one basket." Mutual funds (also referred to as managed funds and unit trusts) are an investment vehicle in themselves so you may be asking the question "How do you diversify when investing in mutual funds?"

Actually mutual funds are a great vehicle for diversification as you can spread your investments within one fund alone. A mutual fund pools the money of investors and distributes the funds according to the type of fund that has been chosen. With small sums of money you are able to achieve diversification very well.

Take for example a Balanced Fund which uses each of the asset classes in percentages appropriate to the current markets. Generally a Balanced Fund has 50% in growth assets such as shares and 50% in more conservative income areas. This is diversification and it can be achieved with as little as $500 in some funds. This spreading of investments is called asset allocation.

Those with larger sums of money can invest in a variety of managed funds applying their own diversification. The example here would be placing a percentage of funds into a share fund, a fixed interest fund, a property funds, a cash fund as well as using a fund specialising in international markets. Once again diversification is achieved.

Not only do you invest in various asset classes to diversify your investments but you need to invest in a number of different assets within that asset class. In the case of shares you will require an investment into different industries as well as holding a number of different shares. If one industry has a bad period other industries may perform well.

With your portfolio spread among several different investments through your managed fund, you benefit when each type is doing well. It also limits exposure when one or more investments are performing poorly. Alone a particular investment may be volatile but placing it with another that performs at different market cycles you average your return and it levels the volatility.

Mutual funds offer the potential for maximizing investment performance, investment flexibility, and convenience. These funds allow you to allocate investments among several asset categories to tailor the mix to suit your needs and they are professionally managed on your behalf.

Being able to diversify when investing in mutual funds is simple, and a great way to invest, particularly for investors with smaller sums of money.

How Mutual Funds Compare to Other Investment Options

The first thing to understand about mutual funds is that they are pooled investments that are managed by a professional fund manager. The question arises in many people's mind as to how mutual funds compare to other investment options.

Mutual funds are also known as managed funds and unit trusts. Whatever their name they all follow the same pooling concept. The main benefits of this pooling of funds is that investors can invest in a range of different assets with smaller sums of money. Because of this you are able to diversify a lot easier than investing directly into other investment options. The use of the pooled funds gives the managers access to markets that require very large cash deposits and this would not be possible for many individuals.

Mutual funds themselves invest in many asset classes and types of investment allowing you to invest into the other options without having to have too much investment knowledge -- you let the managers do their job by looking after the funds. The managers have access to market information worldwide that you would not necessarily have access to. They are on the spot to make decisions.

When looking at other investments you do the decision making yourself, although you can have an adviser to make recommendations. You may or may not have expertise in the particular investment area. The option to invest directly gives you more personal control in what assets are included. However, you will undoubtedly require much larger amounts of money to gain true diversification. Of course diversification can be achieved using a combination of mutual funds and direct investment.

Many argue that mutual funds are expensive but there are varying options to choose from. Research the funds for their entry fees, MER (management expense ratio) and management fees. A fee based Financial Planner would normally rebate the entry fees as an entry fee does affect your investment at the outset. But if you were investing directly into shares there are brokerage fees for buying and selling whereas exit fees only normally apply to mutual funds that have not charged an entry fee. In the US no-load mutual funds are sometimes preferred because they do not come loaded with fees.

Other benefits of using a mutual fund compared to investing in other options is the liquidity aspect as the funds are usually able to be accessed within days. They are also ideal to use for drip feed investing whereas this is not usually possible with many other investments options. Due to tax changes over recent times New Zealand managed funds are more tax effective than direct investments.

Whether you invest in mutual funds, other investment options or a mix of both there are advantages and disadvantages of both and it is up to you to choose what suits you best...or speak with a Financial Planner to help you get it right.

How The Small Investor Can Beat the Market and the Fund Manager

Certainly the professional has advantages. He has a large budget to buy the latest research or even have a staff to perform independent research. He may also own enough shares to be able to call the company or visit and get information about how the company is performing first-hand (Note that he will not get any insider information since it is illegal to disclose such information to outside parties - he may just get more attention by the officers due to the number of shares held). He may also be able to get people on the board for the company. He will also be able to buy and sell shares at lower commissions than the retail investor.

That said, the small investor has some advantages over the professional managers. The small investor is not beholden to other investors, and therefore does not need to try to beat the performance of other funds each quarter. The small investor also does not have individuals buying or redeeming shares of his fund. These actions, which usually occur at just the wrong times, force mutual fund managers to sell or buy shares of stock at bad times in order to raise cash for redemptions or stay fully invested.

The most important advantage that the small investor has is ironically due to the size of his portfolio. Because the professional manager has billions of dollars under management he must buy several different securities in each sector. If he tries to just buy his favorite he will drive the price up just from his purchase, resulting in the receipt of a poor price. Likewise when selling he would drive the price downwards. He therefore must purchase not just his top pick, but basically the whole sector. This means that his performance will never be better than the market.

The small investor, on the other hand, can just buy the top picks in the sector. His purchases and sales do not affect the price of the shares. He can also hold the shares for long periods of time, avoiding capital gains taxes until opportune moments. There is no pressure so sell shares because of redemptions that the mutual fund manager faces.

The small investor must take advantage of these advantages, however, through his investing style. If one tries to time the market, jumping in and out of stocks, the professional with his advantages in lower fees and information will win out. One would be better off just buying some low-fee mutual funds or index funds. If the small investor buys for the long-haul and concentrates in only the best stocks in each sector, however, he can beat the market and the pros.

So if you wish to beat the pros, use your advantages. 1)Buy only the best companies that have good long-term prospects and 2)hold them until the fundamentals of the company change such that they are no longer good prospects.

Exchanged Traded Funds (ETFs) Versus Mutual Funds (MFs)

From the outside Exchange Traded Funds (ETFs) and Mutual Funds (MFs) look like the same financial products. A closer look at each of them reveals the many advantages and disadvantages of ETFs versus MFs. As for MFs I am only discussing open ended funds, not closed end funds. Regarding ETFs I will not consider exotic funds (for example,interest rate swaps and forward one month future contracts) or precious metals funds as these ETFs have different tax consequences.

Advantages of ETFs:

Significant cost advantage: Expense ratios are generally lower for ETFs than for comparable MFs. Vanguard offers very similar ETFs and MFs that follow the same index but the ETFs have much lower expense ratios. For example, the MF that tracks the Standard and Poor (S&P) 500 VFINX has an expense ratio of.18% versus ETF VOO for which the expense ratio is.06%. This is only a saving of US $12 on an investment of US $10,000 per year, but compounded over time it can add up to thousands of dollars coming out of investors' pockets. There can also be a commission fee every time you buy an ETF (since you are buying a stock), but many brokerage firms will waive the fee if you buy their ETFs.

Buy or sell at any time: ETFs are just like stock - you can buy or sell them whenever you wish. Mutual Funds are processed once a day at the next closing net asset value (usually at the end of the day). Another advantage is you can place limit buy or sell orders (same as for stock).

Tax advantages (for non tax exempt account): ETFs do not distribute capital gains every year like mutual funds (except on rare occasions) so you will only have to pay the capital tax when you sell the fund.

No minimum investment amount: You can buy 1 ETF share or 100,000 shares. Most (if not all) MFs have an initial minimum purchase amount, for example, US $5,000 as well as a minimum reinvestment amount, for example, US $100.

You can short an ETF: Just as with stocks, you can short ETFs.

Disadvantages of ETFs:

No automatic dividend reinvestment feature: You have to reinvest the dividends (just like stocks). For most MFs you choose to automatically reinvest the dividends.

ETFs are only as good as the index: ETFs are passive (non-managed) funds that try to duplicate the performance of an index, for examples, S&P 500, Russell 2000, and others. This may be a positive since not all MF managers beat the appropriate index benchmark with which they are compared.

Can have high bid / ask spreads that are thinly traded and have small market capitalization: Always check if an ETF you are interested in is thinly traded or has a small market capitalization. The ETF liquidity could disappear in severe market conditions. Also, the spread between the bid and ask price can cause more expense when you are selling.

Advantages of MFs:

Automatic dividend reinvestment feature: As a mutual fund investor you can choose to automatically reinvest your dividends in the mutual fund.

Activity managed by MF manager (if not index fund): MF managers try to out-perform the comparable benchmark and peer funds through their selection of investments. This has the potential for out-performing the market.

Lower cost if buying shares on a monthly basis (no stock transaction cost): MF can have lower cost if buying shares every month.

Disadvantages of MFs:

High fees and sales loads: With MFs there can be sales charges on buying (front-end sales load) and redemptions (back-end sales load). These loads can be a maximum of 8.5% (most MFs do not charge the maximum). Mutual fundshave higher fees than ETFs. The following are examples of the fees: management fee, non-management expense, and 12b-1/non-12b-1 fees.

Distribute capital gains every year (for non tax exempt accounts): Mutual funds are required by law to distribute capital gains each year (MFs must distribute 95% of the gains to shareholders). The capital gains distribution is a result of an MF selling shares. For example, if the market is going down the MF manager may have to sell shares because of the need to raise cash for shareholder redemptions.

Shares can only be sold when the market closes: Mutual Funds are processed once a day at the next closing net asset value (usually at the end of the day).

High minimum investments and reinvestments can be required: MFs can have high minimum initial investments. For example, Vanguard MFs have a minimum of US $3000 for initial investment.