Theme: Organizational aspects and procedure of mutual funds

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Theme: Organizational aspects and procedure of mutual funds.
Mutual investment fund combines the money of different investors in order to collectively invest them in some financial instruments: stocks, bonds, real estate or others.
You can buy a share - a share in this portfolio. Or several shares - their number depends on the price of the share and the amount you deposited.
The share can be sold, bought or pledged. Ideally, its price is increasing every day. After some time, you redeem the share more than you bought, and receive income.
A special financial organization, the management company (MC), manages the funds of the mutual fund. It decides which securities or other assets to acquire, when to buy them, and when to sell them.
The main characteristic of a mutual fund is the direction of investment. Some choose stocks, others choose bonds, others choose currencies, real estate or art. Many mutual funds combine assets of several types at once.
Funds for experienced - qualified - investors can invest in almost any asset. Mutual investment funds for retail (non-qualified) investors channel funds into the least risky financial instruments.
A mutual fund is a financial intermediary in the capital market that pools collective investments in the form of units of retail and corporate investors and maintains a portfolio of various schemes that invest these collective investments in equity and debt instruments on behalf of these investors. A mutual fund is an expert organization that helps an investor invest in equity and debt instruments indirectly rather than taking the risk of investing money directly in these instruments. A common investor does not have any experience or knowledge to invest directly in Indian stock market and often investors lose money due to wrong selection of stocks or bonds. Thus, mutual funds actively provide portfolio management expertise as an intermediary and diversify the risk by spreading the investments of all investors across a variety of equity and debt instruments. This helps the investors to get better returns with low risk as compared to high risk returns if they invest directly in the capital market.
A mutual fund is a collective reservoir or pool of funds managed by a qualified and expert fund manager. It is a trust that receives funds from a number of investors with a common investment objective and invests these funds in stocks, bonds, money market instruments and other securities. The income from this joint portfolio is distributed proportionately among the investors by calculating the 'net asset value' or NAV of the scheme after deducting relevant expenses and charges. Simply put, money collected by a large number of investors is allocated to units under a mutual fund scheme. This pooled money invested in stocks or bonds or short-term securities will grow or shrink depending on the performance of these investments. This is reflected in the NAV value.
Mutual funds are perfect for investors who don't have a lot of money to invest or those who don't have the knowledge and time to study the market but want to grow their wealth. In return, the fund house receives a small fee deducted from the investment for its expertise. Fees charged by mutual funds are limited to certain limits set by the Securities and Exchange Board of India (SEBI). Over the past few years, mutual funds have gained favorable status as investors regularly invest in equity/balanced schemes through them.
Just as an equity share has a market price determined by trading on stock exchanges, a mutual fund unit also has a net asset value (NAV) based on the closing price of the stocks and bonds that are part of the respective portfolio of the mutual fund scheme. NAV is the total market value (less legal expenses and fees) of shares, bonds and securities held by the fund in the portfolio of a particular mutual fund scheme on any given day. NAV per unit represents the market value of all shares/bonds/bonds or other instruments in a mutual fund scheme on a particular day, net of all expenses and liabilities and accrued income, divided by the outstanding number of units in the scheme.
NAV = Market Price of Stock + Other Assets - Total Liabilities + Units Outstanding on NAV Date
NAV = Net Assets of the Scheme + Number of Units Outstanding i.e. Market Value of Investments + Accounts Receivable + Other Accrued Income + Other Assets - Accrued Expenses - Other Payables - Other Liabilities + Number of Units Outstanding on NAV Date
Mutual funds are managed by a professional organization called AMC (Asset Management Company) through professional fund managers who actively manage the investment portfolio of various mutual fund schemes offering the following benefits to investors:
(1) Portfolio diversification: Mutual funds invest in a diversified portfolio of financial instruments, which allows a small investor to have a diversified investment portfolio even if the investment amount is small.
(2) Low risk: Even with a small amount of investment, investors can acquire a diversified portfolio of financial instruments. The risk in a diversified portfolio of a mutual fund scheme is less than investing directly in only 2 or 3 stocks or bonds.
(3) Low transaction costs: Mutual funds incur lower transaction costs due to economies of scale. These benefits are shared with investors.
(4) Liquidity: Units of mutual fund can be easily redeemed by direct transfer to investors account through ECS payment.
(5) Choice: Mutual funds offer investors a variety of schemes with different investment objectives. Therefore, investors invest heavily in a scheme that suits their financial goals. These schemes additionally provide various plans/options e.g. dividend option or growth option or reinvestment option etc.
(6) Transparency: Funds provide investors with up-to-date information regarding markets and schemes. All material facts are disclosed to investors as per SEBI and AMFI guidelines. They provide the latest NAV to the investors every day.
(7) Flexibility: Investors are also offered flexibility by mutual funds. Investors can transfer their units from debt scheme to equity scheme or balanced scheme through Systematic Transfer Plan option (STP). Systematic investment option through monthly/quarterly installments (SIP) and regular periodic withdrawal (SWP) are also offered to investors in open schemes.
(8) Safety: The mutual fund industry is fully regulated under SEBI regulations which protect the interests of investors. All funds must be registered with SEBI and full regulatory compliance and transparency is ensured.
(9) Professional Management: Mutual fund portfolios are managed by expert professional managers who have the skills and qualifications to analyze companies' performance and prospects. They actively manage portfolios through close daily monitoring, which is not possible for a retail investor.

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