Mutual Fund Basics

Dear Readers, 

It's been long time i come up article, i am sure you are waiting for a nice article, from now onwards i would like to present my readers about article which will give them very nice understanding about mutual funds as well as help them to identify the best mutual funds that hey can construct best portfolio for their better financial future. In Present post i am doing to cove about following point: 

• What are mutual funds.
• Basic type of mutual funds.
• Mutual fund categories. 

Majority of the people know that it's smarter to own a variety of stocks and bonds than to gamble on the successful performance of just a few. But diversifying can be tough because buying a portfolio of individual stocks and bonds can be  expensive. And knowing what to buy & when takes time and concentration. Mutual funds offers one solution, when you put money into a fund,  it's pooled with money from other investors to create much greater buying power than you would have investing on your own. A fund can own multiple different securities, its success isn't dependent on how one or two holding do. 

Mutual Funds makes money in two ways by earning dividends or interest on its investment's and by selling investments that have increased in price. The find distributes, or pays out, these profits to its investors in the different forms (Capital gains, dividends).

When we think about Mutual funds immediately the words come into our minds are OPEN-END FUNDS & CLOSED-END FUND.  

Let look into what is open-end fund: That means the fund sells as many share as investors want. As money comes in fund grows. If investors want to sell, the fund buy their shares back. Some times open-end fund are closed to new investors when they grow too large to be managed effectively. though current shareholders can continue to invest money even though fund is closed this way. Don't worry investment company often creates a similar fund to capitalize on investor interest. Other words in an open-end fund investor can buy & sell the shares of open ended fund at any time. 

Now about closed-end fund: more closely resemble stocks in the way they are traded. While these funds do invest in a variety of securities, they rise money only once and offer only a fixed number of shares that are traded on an exchange or over the country. In Lehman terms investors can't sell these mutual funds for certain time duration, this duration varies from fund to fund. 

Mutual funds are mainly categorized as 3 categories. But always there will be combinations of these three categories may exists. 

• Stock Funds
• Bond Funds
• Money market funds

Stock Funds also called equity oriented funds, invest primarily in stocks. 

Bond Funds invest primarily in corporate or government bonds. 

Money market funds make short-term investments to keep their share value fixed at certain price. 

But now a days there are so many existing funds which mainly focus of certain type of investments. Some example for them are:

Precious metal funds trade chiefly in mining stocks. 

Sector funds buy shares in a particular industry, such as health care, electronics or utilities. 

High-yield bond funds buy risky bonds to produce high income. 

Feel free to write your feedback, comments & questions in so that i can improve the article. 

--

email: sriram.adviser@gmail.com

Where to Invest Now

The views in the market are terribly varied. Everyone has their own take on where it is headed. We present you with three broad scenarios. Then we leave it up to you to decide which view you personally tilt towards.

The mind of the Pessimist
The slowdown of GDP growth gives the impression of a fatigue swimmer flailing for shore. Inflation keeps raising its ugly head. Elections are looming, bringing with it uncertainty which the market hates. And, globally, the threat of a U.S. recession has turned into a reality. If India can benefit from an increasingly globalised environment, can it possibly be immune to global weakness? And, to add fuel to the fire, the price of oil remains alarmingly high. From now on, the market has only one way to go - downhill. 2008 is the year of the Great Indian Meltdown.

The mind of the Realist
No one knows where the market is headed: Up, down or range bound. On the one hand, we do have the India growth story firmly rooted in domestic consumption. But on the other, the U.S. recession is a reality and it is foolish to presume that India will be insulated from it.

GDP growth has slowed down from 9% rates, but will continue to clock around 8% per annum. Not bad at all. But the battle with inflation continues and political uncertainty, thanks to the nuclear deal and elections, is here to stay.




Stocks are available at great bargains. And there will be more market slumps throwing up some good buys. But then who knows if the market will ever rally substantially to give a good return on investment? That's reality. No one knows what to expect anymore.

The mind of the Optimist
Living in an era of globalization, we are bound to get hit. But there is ample activity within the country to soften the blow. Domestic demand, increasing employment numbers, rising incomes, a growing middle class coupled with mounting customer credit and increased infrastructure spending will keep the economy on a roll. The demographics, in terms of a young population, are strong enough to ensure that consumption growth will be a key driver of the economy over the long run.

The capital market is sensitive to global dips and short term volatility is something we must get accustomed to. The factors driving the market are long-term and structural in nature. Within this structural run, there will always be shorter-term cycles (over the long term). And within different cycles, the sector leadership may differ. But the fundamentals of the economy remain strong and the prospects upbeat.

For advises contact.
sriram.
Phone no: 09986031067
email id: sriram.adviser@gmail.com

How to Select a Good Mutual Fund

Step1:
Decide what percentage of your money you will allocate to mutual funds. If you'll be investing less than 15,000 to 20,000 Rs/- overall, many investors advise that all of your investments should be in mutual funds.
Step2:
Determine how many mutual funds you will invest in. Three to five funds is generally considered an adequate amount of diversification.
Step3:
Decide whether you'll deal directly with the financial Adviser or use a broker.
Step4:
Diversify the funds you buy in terms of the size of the companies in their portfolios and the businesses that those companies are in.
Step5:
Choose high-performance funds by using Internet resources and newspapers to pick those funds that have had the best performance over at least the last three years.




Tips & Warnings:

• Using a discount broker who sells no-load funds without taking a commission makes it easy to switch from one fund to another.
  
  
• A large group of mutual funds does not necessarily provide diversification because the companies whose stocks they hold will overlap.
  
  
• If you don't buy no-load funds whenever you can, you could lose a good deal of your returns - or even your principal - to commissions.
  

***********************************
For more details
Contact: Sriram
Phone No: 09986031067
Email Id: sriram.adviser@gmail.com
***********************************

Choosing a Mutual Fund

Choosing the right funds—and trusting your decisions enough to back them with your money—is challenging. To keep from getting overwhelmed, be sure you understand what you want for your money (protection, income, growth), then look only at the funds that aim for the same thing. But where can you look for information?

Look at the fund prospectus
The prospectus is essentially the user's manual for a mutual fund. It has the reputation of being dense and complicated to read, but recent changes in regulations have required funds to make every prospectus much simpler, especially in the key areas of understanding performance and expenses. Simply looking at the charts and tables in the first few pages will tell you a lot you need to know.

What's in a prospectus? The SEBI requires every fund to publish a prospectus and update it annually. It covers all of the important elements, such as the history, management, financial condition, performance, expenses, goals, strategies, types of allowable investments, and policies.




Performance: Each fund must tell you how much it has increased or decreased in value in each of the past 10 years (or for every year of its existence, if shorter). This is labeled in the prospectus as "performance" or as "annual total return." Fund performance is required to be shown against a relevant industry benchmark, a performance measure used by the industry of how the market segment has performed as a whole compared to the investments in that segment held by the fund. Typically, the benchmark will be an "index" for that category.

Average annual return: While every fund has to show its annual performance, every fund also must to tell you its average return on a yearly basis. Average annual return is important because it keeps funds from promoting their best years and ignoring their worst years. It takes the total returns for each year and averages them across the number of years the fund has been in existence.

Fees and expenses: The prospectus will tell you if a fund charges a sales charge or is a "no-load" fund, meaning that there is no up-front sales charge. All funds charge management fees and expenses, which will be described in the prospectus.

Use independent rating services
Independent rating services: often provide a convenient way to find out information about a fund very quickly. These services typically provide you with a rating or ranking of a fund based on its performance relative to its broader peer group, as well an opinion about a fund's management team and operations. When you subscribe to a service, you may get access to a wide range of information and services, depending on your subscription level. Tools and resources typically include access to fund ratings or rankings, computer-based guides, educational materials, and monthly and quarterly newsletters.

Risks
Because mutual funds typically hold a large number of securities, their level of diversification provides them with a lower level of risk than investing in a single stock or bond.

However, investing in mutual funds still contains a number of risks that you should consider before investing, including:

You could lose money, Your money may lose buying power, You may not achieve your goal, Your investment may rise and fall in value Other risks You could lose money

Every mutual fund prospectus will highlight this point. It's the most obvious and feared risk of investing. There are, however, many strategies for managing this risk, particularly over the long term.




Your money may lose buying power
This risk is also known as inflation risk: as prices increase, your investments must increase in value at least at the same pace, or you'll lose purchasing power.

You may not achieve your goal:
Probably the biggest, yet most overlooked risk of investing, is the risk of not achieving your goal. It's probably overlooked so often because so few investors actually set goals, and many others set unrealistic goals. Furthermore, many investors don't buy the right investments to help them achieve their goals. This type of risk is often called shortfall risk (falling short of your goal). For example, if you are investing to pay for a future college education, a money market fund might feel safe. But it's highly unlikely that you'll reach your goal.

Your investment may rise and fall in value : Almost all investments have the potential to gain and lose value. This is known as market risk. In other words, the price of any investment, whether it's stocks, bonds, mutual funds, or any other, is likely to rise and fall over time. Seasoned investors tend to ignore the relatively small price movements in their investments, preferring to try and capture the more significant fluctuations they can better anticipate. If you invest for longer periods of time, market risk may become less dangerous to you. That's because, over the long-term, most investments tend to rise in price. Market risk, however, can place investors at a significant disadvantage if they are forced to sell at a time when prices happen to be down.

Foreign exchange or currency risk:
If you invest overseas, the exchange rate between your home currency and the foreign currency adds an extra layer of risk to your investment. The stock or bond you buy may go up, but the exchange rate may go down so far that it wipes out your gain.

The halo effect : When something wonderful happens to one stock in an industry, many of the others in that industry may also enjoy a rise. This is known as the Halo Effect. But it also occurs in reverse, taking value out of perfectly good investments just because they are linked in the minds of investors to another investment that is experiencing a problem.

What are Mutual Funds?

A mutual fund is a pool of money that is professionally managed for the benefit of all shareholders. As an investor in a mutual fund, you own a portion of the fund, sharing in any increases or decreases in the value of the fund. A mutual fund may focus on stocks, bonds, cash, or a combination of these asset classes.

The beauty of mutual funds:
Mutual funds offer a number of advantages, including diversification, professional management, cost efficiency and liquidity.

Diversification : A mutual fund spreads your investment Rupees around better than you could do by yourself. This diversification tends to lower the risk of losing money. Diversification usually results in lower volatility, because when some investments are doing poorly, others may be doing well.

Professional management : Many people don't have the time or expertise to make investment decisions. A mutual fund's investment managers, however, are trained to search out the best possible returns, consistent with the fund's strategies and goals. In essence, your mutual fund investment brings you the services of a professional money manager.

Cost efficiency : Putting your money together with other investors creates collective buying power that may help you achieve more than you could on your own. As a group, mutual fund investors can buy a large variety and number of specific investments. They can also afford to pay for professional money managers and fund operating expenses, where they wouldn't be able to afford it on their own.


Liquidity : With most funds, you can easily sell your fund shares for cash. Some mutual fund shares are traded only once a day at a fixed price, while stocks and bonds can be bought or sold any time the markets are open at whatever price is then available.

Buying shares :
You can buy shares a few different ways, depending on the rules of the particular fund. Funds are often described as either being "no-load" or "load" funds, depending on whether or not they charge a sales commission.

No-load funds: Many funds are no-load funds that charge no (or a very low) sales fee or commission. Financial companies typically sell no-load funds directly to investors in places like newspapers and magazines. In this case, you complete all the paperwork yourself.

Load funds: These funds charge a sales fee or commission for purchases. Some funds charge the fee when you buy shares; others charge when you sell them. Brokerage firms and banks often sell load funds, and will help process any paperwork.

There are reputable, high-performing funds in both categories. Because sales charges reduce your return, we believe that investors should consider no-load funds whenever possible.

Funds typically give you two ways in which to invest:

Lump sum: You can invest any amount you want at one time, as long as you meet the minimum requirements of that fund. Some funds have no minimum for opening an account or no minimum for additional share purchases, while others do.

Automatic investment: Most funds offer plans that allow you to transfer set amounts on a regular basis automatically from your bank account or paycheck. This is a great way to save money on a routine basis.

With automatic investing, you get the benefits of rupee cost averaging. That is, when you make regular investments in a mutual fund, such as investing 1000 Rs/- every month, you can take advantage of both the ups and downs of the market. When the market is down, your monthly investment typically buys you more shares of the fund, helping to increase your ownership in the fund. When the market is up, your monthly investment typically buys you fewer shares of the fund, helping you avoid buying too many shares at higher prices. Over a long period of time, the end result is that the average cost of your fund shares is lower than the average price of the fund shares during the same period.
Exchanging and selling shares

Many funds allow you to make free exchanges of your shares for shares of another fund owned by the same fund company. Typically, there is a limit to the number of free exchanges you can make. Be aware that even though an exchange may be free, there may be tax consequences associated with it.

To sell shares, you either call the fund directly if you have a no-load fund, or have your broker or bank officer do it if you have a load fund. Typically, you are given the option to have the proceeds deposited into your account or sent directly to you by check or wire. Some funds will charge you a fee if you don't keep the fund shares for a minimum amount of time (e.g., 90 or 180 days).

Share price:
The value of a mutual fund share is calculated based on the value of the assets owned by the fund at the end of every trading day. Here is how it works:

The fund calculates the value: A share's value is called the Net Asset Value (NAV). The fund calculates the NAV by adding up the total value of all of the securities it owns, subtracting the expenses of the fund, and then dividing by the number of shares owned by shareholders like you.

Value changes daily: Since the value of the stocks or bonds owned by the fund can change daily, the value of the fund can also change daily. Therefore, a fund is required by law to adjust its price once every trading day to provide investors with the most current NAV.

How many shares you own: To see the value of your investment, you take the value of one share and multiply it by the number of shares you have in the fund. Or, if you are considering investing say 1,000 Rs/- in the fund, you would divide that money by the value of one share to see how many shares that 1,000 Rs/- would give you. While you cannot buy a fraction of a share of stock, you can own a fraction of a mutual fund share, if the amount you invest does not divide evenly by the NAV.

Earning money :
Once your money is in a fund, it can provide you with earnings in three ways. They are discussed in the following sections.

Appreciation: The value of a fund share can appreciate or go up in value. (Of course, it can also go down in value.) When the total value of the securities owned by the fund rises, the value of your fund shares rises with it. Again, the reverse is also true.

Dividends: If the fund receives dividends from stocks, interest from bonds, or other investment income, it distributes those earnings to shareholders as a dividend according to the terms outlined in its prospectus. Depending on the fund, these distributions can be monthly, quarterly, or annually.

Capital gain distributions: Every time the fund manager sells securities at a profit, the fund earns capital gains. Funds are required to distribute these gains to the shareholders at regular intervals, typically once or twice a year. You can choose to have the fund automatically reinvest the money in more fund shares, keep it as cash in your account, or send the money to you.


Please feel free to discuss about your question in the comments section.

Franklin India Flexi Cap Versatile Fund

Even though it prefers large-caps, Franklin India Flexicap's mandate permits it to invest across market cap segments. It focuses on companies that have a sustainable growth potential

Contrary to the implication of “Flexicap” the fund has clung on to large caps through its inception. The fund maintains about a quarter of its investments in mid and small cap companies. A look at the portfolio of Flexicap shows that it is extensively diversified. The average holdings are quite small and the fund managers take concentrated bets on a handful of companies.


In the beginning the fund was a little more adventurous trying out new stocks, holding them for short time before booking profits. However, of late the fund gives the impression of playing it safe. There has not been much churn in the portfolio composition and the fund has begun holding on to a select list of stocks, occasionally building its position in them. The focus is definitely on companies that have a sustainable growth potential rather than investing in short term momentum bull runs.

One can also find a few contrarian bets here; the fund has been amongst the few to have bet heavily on the automobile sector. Of late there has been a build up in the basic engineering sector. But at the end of the day, there is a strong favour for diversified companies such as Larsen and Toubro, Grasim Industries and the like.

Flexicap should definitely enter your list of probable investment options, but don't get swayed by the large cap exposure. For all practical purposes it is a multi cap fund.

To Buy Mutual Fund contact: Mr.Ram, Email id: ramfinancial.adviser@gmail.com or send SMS MF_FIFC to 09811082457

10 tax saving funds that can make your money grow

There are very few of us out there who don't want to make money. Most of us, in fact, are very interested in seeing our wealth grow, particularly if it happens without too much effort on our part.

If you fall in this rather large category, then mutual funds are an investment option you must consider. If you are worried about tax implications, you could invest in ELSS or tax saving mutual funds.

According to Value Research, a premier mutual fund research company, investing in certain ELSS funds would have seen the value of your money grow by more than 50 per cent in the last one year.

To put it simply, if you had invested Rs 10,000 on June 7, 2006, it would have multiplied to more than Rs 15,000 by June 8, 2007.

This table shows the top 10 tax saving mutual funds: