When considering investments, people often are skeptical about
Mutual Funds simply because they feel it is complicated to understand and manage. Keeping aside the jargon when simply put, it is a pool of funds put together by likeminded investors. And whatever the sum of their contributions is managed by professional fund managers, who keep up with the markets and use their skills to invest in various financial instruments.
Now these investors have a common financial goal and basis that their funds are then put into a scheme that matches these objectives. These funds are generally well diversified, invested in varied stocks, bonds, short term
money market instruments and commodities. This way mutual fund investments offer an attractive way of savings, which are managed quite passively, without asking for much attention and that too by experts who manage money every day.
When choosing types of funds, an investor must first be clear on the sum of investment, term of investment and risk taking ability. For this it is necessary that you know about the different options available. So the basic three categories of mutual funds are:
- Debt funds
- Equity
- Liquid/ Hybrid Funds
Debt funds, as the name suggests works on borrowings. It is on these funds that most of the companies, state and even central governments work. They do so by offering several debt instruments like Tbills, debentures etc. Debt fund gives assurance of principal investment being returned after the tenure and the interest too is calculated on a given rate of interest. It is these debt funds that bring stability to investment portfolio because the risk involved is lower to that of
Equity Mutual Funds.
When you invest in equity funds, you are quite like the owner of the company for the extent of investment you’ve contributed. This obviously explains how profit and loss of these funds and their performance directly impacts you. And because of the high risk involved the potential of returns are high as well. But one must keep guard of inflation in the long run and market fluctuations in the short run.
Liquid funds are highly liquid assets, which is as good as cash. Being readily available back to the investor, these have least risk involved and the returns these may give you can be slightly higher than a savings account. Hybrid funds, as the name suggests has a combination of debt and equity in the portfolio. Depending on the mix of equity and debt, hybrid funds can have quite a variety.
When you withdraw your funds back, they are paid back basis Net Asset Value (NAV). NAV, like share price, represent the market value of each unit of a fund or the price at which investors can buy or sell units. This is calculated basis the combined market value of the shares, securities and bonds on a particular day.
Disclaimers
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. Certain factual and statistical information (historical as well as projected) pertaining to Industry and markets have been obtained from independent third-party sources, which are deemed to be reliable. It may be noted that since NAM INDIA (Formerly known as Reliance Nippon Life Asset Management Limited) has not independently verified the accuracy or authenticity of such information or data, or for that matter the reasonableness of the assumptions upon which such data and information has been processed or arrived at; NAM INDIA (Formerly known as Reliance Nippon Life Asset Management Limited) does not in any manner assures the accuracy or authenticity of such data and information. Some of the statements & assertions contained in these materials may reflect NAM INDIA’s (Formerly known as Reliance Nippon Life Asset Management Limited)views or opinions, which in turn may have been formed on the basis of such data or information.
Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision. None of the Sponsor, the Investment Manager, the Trustee, their respective directors, employees, affiliates or representatives shall be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
