It is highly fundamental to invest money today to add your income. There are numerous financial ways to invest and get a positive return. These can be banked financial deposits, mutual funds or stock market. But choosing the best financial plan to get a positive return could be a cantankerous job sometime.
Investing in mutual funds is more expedient than other financial investment methods. So, to get the best of all we should know a few terms dealing with the mutual funds. Here is a guide to mutual funds, to get you started:
What is a Mutual fund?
A mutual fund is an investment programme regulated by the Securities and Exchange board of India. It is a professionally managed pool funded by shareholders that trades in diversified holdings.
If you want to invest in a mutual fund, you should be well-versed with the following points.
The portfolio is an amalgamation of various financial assets such as stocks, bonds and the equivalents of cash. It is a common term for all the investments made by the fund including the cash equivalents.
Asset Management Company (AMC)
An Asset Management Company is the house of funds or the company that take the helm of the money.
The mutual fund is a trust registered under the Indian Trust Act. It is commenced by a sponsor. A sponsor is the one who either acts individually or with the CORPORATES to ensconce a mutual fund. He then accredits an AMC to manage the various functions such as investment, marketing, accounting pertinent to the fund.
It provides their investors with more diversified and investment options, managing mutual funds, hedging the funds and the pension plan.
Net Asset Value
The Net Asset Value is the value per unit of a fund. It is calculated once a day based on the closing market prices of the securities. It is considered as the ‘best gauge of the mutual fund performance.
This is a fee charged while buying or selling the units of a fund. Load are of two types- entry and exit
Entry Load is levied as a percentage of the fee on the purchase of a mutual fund scheme.
Exit Load is levied as a percentage amount when an investor exits mutual fund investment before the otherwise stipulated period.
A balanced fund combines a stock and a bond component and sometimes a money market component in a single portfolio. Generally, these hybrid funds flow to a relatively fixed mix of stocks and bonds that reflects either a moderate or higher equity component.
It is the total value of money invested by all investors in a mutual fund scheme. Corpus fund designatesa permanent fund for the basic expenditures of administration and growth of the organisation.
Debt mutual funds usually invest in a mix of debt or fixed income securities such as Government Securities, Corporate bonds. They have fixed maturity rate and a fixed interest rate.
Diversified Equity Mutual Fund
It diversifies investments across the stock market in a bid to enlarge returns for investors. They usually invest in companies irrespective of its size and sector.
Assets Under Management
Assets under Management are the total value of all the investments currently managed by the fund.
Equity Linked Saving Schemes
Equity Linked Saving Schemes are diversified equity mutual funds with a tax benefit under Section 80C of the Income Tax Act. To avail the tax benefit, the money must be locked up for at least three years.
Systematic Investment plan
A Systematic Investment Plan refers to periodic investment in a fund. Every month or every quarter, the investor invests a fixed amount which is used for purchase of units.