Mutual Funds Decoded

Hey Friends, Today We are going to discuss MUTUAL FUNDS. The Explanation giving here is very basic and enough to provide you the overview of this Concept. We hope you will enjoy reading this article.

# Mutual Fund is not an alternative investment option. It’s a kind of vehicle for investing in Stock, Shares and Bonds.

# It pools the money on several investors and invests this in stocks, bonds, money market instrument and other securities.

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FUND PROSPECTUS: Fund’s objective is written out into this. It is legal document that contains information about the funds, it’s history, its officers and it’s performance.

ASSET MANAGEMENT COMPANY: The Company that puts together a mutual fund is called an AMC.

# All AMCs regulated by SEBI .

# Every Mutual Fund has a board of Directors that is supposed to represent the shareholders’ interests, rather than the AMC’s.

# NET ASSET VALUE: calculated by AMC at the end of every business day.

# SPONSOR: Who establish the Mutual Fund. e.g., A Group or a single person.

# LOCK IN PERIOD: The money that remain locked in with the mutual fund company for a period of n years.

n should not be more than 36 years for REPURCHASE OF UNITS.

# SYSTEMATIC INVESTMENT PLAN: enable you to invest an amount on a regular basis and bring a disciplined approach to investing.

VARIOUS TYPES OF MUTUAL FUNDS:

BY STRUCTURE:

# OPEN ENDED: funds that can buy and sell any time throughout the year.

# CLOSE ENDED: open only for specific period after which one has to buy them from the SECONDARY MARKETS.

# INTERNAL SCHEMES: Combine the feature of both open ended and closed ended schemes.

BY INVESTMENT OBJECTIVE:

# Growth Schemes;

# Money Market Schemes;

# Tax Saving Schemes etc.

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ADVANTAGE OF MUTUAL FUND:

# 100% income tax exemption on all Mutual Fund dividend.

# Due to Large Pool of investors, the individual risk is spread. So individually one take it on Low Risk.

TEST YOUR SKILLS

Which of the following is the first commercial bank who had launch a mutual fund?
(a) State bank of India
(b) Canara bank
(c) Indian bank
(d) Bank of India
(e) Indian overseas bank

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Answer: (a)

An open ended fund means 
(a) The fund exists for perpetuity. There is no ceiling on the amount to be collected or raised
(b) Investors are assured of dividends, capital appreciation and safety of their investment
(c) A repurchase facility close to net asset value (NAV)
(d) All
(e) None

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Answer: (d)

A close-ended fund means
(a) The corpus is of fixed size with a definite redemption period
(b) Listing on stock exchanges provides easy liquidity
(c) The market price is always below the net asset value
(d) All
(e) None

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Answer: (d)

Which of the following organizations is the Mutual Fund Market regulator?
(a) AMFI
(b) SEBI
(c) CIBIL
(d) CRISIL
(e) RBI

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Answer: (b)

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