Empower for the Month of February 2013 - Birla Sun Life Mutual Fund

All About Mutual Funds
Rising expenses, children’s education,
unexpected emergencies and finally retirement
– the demands on people’s money seem to
be ever-rising. And savings alone may not
prove to be enough to meet them all. Making
judicious investments though can make their
money work harder. However, most people are
reluctant to invest as they find it very puzzling.
More so, they don’t have the time to monitor
the stock markets.
What is the way then to help you achieve
your financial needs and goals? The
answer can be mutual funds. Here are
a few things about mutual funds that
you must know in order to benefit from
them:
What are mutual funds?
A mutual fund is a professionally managed collective
investment scheme that pools money from many investors.
This money is then invested in stocks, bonds, short-term
money market instruments, and/or other securities.
Types of mutual funds
Mutual funds can broadly be classified as open ended
or close ended. While open ended funds are available for
subscription and repurchase on a continuous basis and
do not have a fixed maturity period, close ended funds are
open for subscription only during a specified period at the
time of launch of the scheme and have a stipulated maturity
period. The funds can further be classified according to the
investment objective as:
• Growth or equity funds: The aim of growth funds is to
provide capital appreciation over medium to long term.
Such schemes normally invest a major part of their
corpus in equities and have comparatively high risks.
• Debt funds: The objective of debt funds is to generate
steady returns while aiming to preserve your capital.
They invest only in fixed income instruments like
company bonds, debentures, government securities etc.
• Balanced funds: These funds invest in both equity and
debt in varying proportions. So, their average returns and
risk profile also fall some where in between growth and
debt funds.
How do mutual funds score over equities?
Unlike equity Investments, mutual fund investments do not
require you to analyze and track companies and the ways
of the market. Also they can help them stay less affected by
the fall in the prices of one particular stock as their returns
are derived by overall performance of various stocks that the
Mutual Fund invests in.
What’s the right time to buy and sell mutual funds?
The right time to buy mutual funds is when the prices of the
funds are low or falling. However, the holding period should be
determined by the market conditions ideally. For eg. in growth
funds a greater holding period can offer greater chance to
benefit.
What are SIPs?
A systematic investment plan allows you to invest in a fund
at regular intervals rather than a lump sum one time amount.
SIPs are based on the principle of rupee cost averaging
which can help make a fall in scheme’s NAV work to the
investor’s advantage. When the NAV falls because of a fall
in the market, SIP can help accumulate more units at lower
rates while restraining them from going overboard in a rising
market by giving fewer units at those higher levels. Further,
by staying invested for a long period of time, they may also
profit from the appreciation in equities tend to show over the
long term.
How do I select the right mutual funds?
While choosing a mutual fund, it’s important to keep your
objectives, risk appetite and investment budget in mind. You
should also keep in mind the performance of the fund over
the last couple of years and check the exit load charged by a
particular scheme which is charged as a percentage of NAV
and has the effect of reducing returns by that amount.
By keeping these simple things in mind,
you can make mutual fund investments
that can work to your advantage and
help in realizing your financial goals.
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