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MUTUAL FUNDS
Why Mutual Funds?
The lay investor is generally found to be lacking in the knowledge
and skill required to make sound investment decisions. Even if he
has the knowledge, he need not necessarily have the time to keep
track of events, understand their implications and act speedily.
It is difficult to keep track of ownership of assets, investments,
brokerage dues and bank transactions. In such a situation, a Mutual
Fund investment is the answer.
What is a Mutual Fund ?
A Mutual Fund is a low cost, diversified, professionally managed
portfolio. Anybody with a few thousand rupees can invest in Mutual
Funds. Various schemes like Systematic Investment Plan (the
investor has the option of investing in small instalments) or Systematic
Withdrawal Plan (the investor has the option of redeeming the
income earned every month or every quarter), make this option attractive
to the individual investor.
The Mutual Fund does all the research, investments and transaction
processing on behalf of the individual. It pools the savings of
a number of investors who share common financial goals. These are
invested by the fund manager in different types of securities. These
could be Shares, Debentures, Balanced (Shares + Debentures) or
Money market instruments (Call money, Government Securities, etc).
The income thus earned and the capital appreciation is shared
by the unit holders in proportion to the number of units owned by
them (pro rata).
Mutual Funds have come a long way. From only one player and a lone
scheme in 1964 (UTI) to as many as 400 schemes and
34 players in the market today. More regulation has come
in and focus has shifted to recession-free sectors like Pharmaceuticals,
FMCG and Technology.
Advice for the individual investor
Any Mutual Fund investor should stay in the scheme for a minimum
period of 2 to 4 years to make money. Investor education is very
important for any scheme to succeed. An investor should understand
that the fund manager of any Mutual Fund always makes a thorough
study of the companies he invests in. Factors like Return On
Capital Employed, Return On Equity, fundamental research like
raw material procurement, efficient usage of assets (whether the
company's plant and machinery is being used efficiently or not)
and economic viability of projects undertaken by the company,
are taken into account before an investment is made.
The Association of Mutual Funds of India (AMFI)
requires the distributors of Mutual Fund products to undergo an
online certification programme. They have to be certified to sell
these products, so that the investor can make healthy, informed
investment decisions.
| Trends in Goa |
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According to a Mutual Fund Industry source, the volume of
investment in Mutual Funds in the city and suburbs can be
anywhere between 15 to 20 crore rupees.
The Mutual Fund schemes are recommended to the individual
investor keeping in mind his risk-taking potential. For example,
they would not recommend a scheme, which invests in money
market instruments to a 60-year old man, as the money market
is by nature very volatile.
The first quarter of this year was boom time for the Mutual
Fund Industry. But end of March saw a different picture altogether.
As the stock market took a tumble, several investors exited
in panic.
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Author : Anuradha Sriraman
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