Importance of Selecting the Right Type of Mutual Fund

May 20, 2015 Posted by admin

Even though the Indian mutual fund industry is seen to going through turmoil in the last few years, it has remained a favourite among many investors. The reason for this could be uncertain market conditions and regulatory changes. For people who are keen on knowing as what this industry is all about and how it could benefit them, here’s a comprehensive way to explain this.

In most cases, the mutual fund investments are carried out through a fund manager. He is responsible to make investments into specific security schemes like stocks and bonds. When you invest in a mutual fund, you are buying units or proportions of the mutual fund making you’re a shareholder or unit holder of the fund.

The profits or losses you incur as an investor would be proportionate to the investments you make. These funds normally come out with a number of schemes carrying different investment objectives which are launched from time to time. The type of mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) that regulates securities markets before it can collect funds from the public. Below are the MFs classifies on the basis of structure:

Close-Ended: These have a stipulated maturity period. In most cases, the tenures could be around 5 to 7 years. The funds here are open for subscription but only during a specified period of time. An investor can invest in the scheme at the time of the initial public issue. After that, he can buy or sell the units on the stock exchanges where the units are listed. In a case where an exit route is required, some MFs in this case give an option of selling it back through periodic repurchases at NAV related prices.

Open-Ended: An open-ended type of mutual fund is the most common one in the market. Here, an investor can choose to invest or transact whenever he wants to. Also, there is no limit to the number of investors or overall size of the fund. The book value or share price of these MFs is determined at the market close each day and is called the Net Asset Value (NAV).

Interval based Schemes: This scheme is the one in which the features of open-ended and close-ended are combined into one. Here, the units are traded on the stock market or may be open for sale or redemption during pre-determined intervals of NAV prices.

Before playing it solo in this arena, one should give a thought to hiring a fund manager from any of the top asset management firms in the country. This could prove of great help when decisions are tough to make. A fund manager will always get his expertise and knowledge to every decision you make.

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