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Enquity Mutual Funds

A common investor may not have the time, knowledge or the skill to participate in the stock
market. Mutual Fund is the best way of participating in the Stock Market for him. Mutual Fund
not only offers Expertise service but also comes at a very minimum expense of time and money.
 

What is Mutual Fund and Why Mutual Fund?

» A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. Anybody with an investible surplus of as little as a few hundred rupees can invest in Mutual Funds.
» The money thus collected is then invested by the fund manager in different types of securities. These could range from stocks in a particular sector to stocks of diversified category.
» It gives the market returns and not assured returns. In the long term, market returns have the potential to perform better than other assured return products. Mutual Fund is the one of the most cost efficient financial products.

Advantages of Mutual Funds

» Professional Management Diversification Convenient Administration Return potential Low cost Liquidity Transparency Flexibility Choice of schemes Well regulated Tax benefits

How do I make money from a mutual fund?
» Capital appreciation: As the value of securities in the fund increases, the fund's unit price will also increase. There would be capital appreciation when you sell your available units at a price higher than the price at which you bought.
»Dividend Income: Fund will have dividend income from the shares.

How to select a Mutual Fund?

For the selection of Mutual fund consider the following criteria:
1) The duration of existence:
• Investing in a very new fund may not be a great idea because we have not yet seen the
performance of the fund or the efficiency of the fund managers. Hence select a fund that has a
track record of more than 7 years.

2) Performance:
• Check out the other funds in the same category and then selct the fund with highest and
consistent performance. Although, the past performance does not guarantee the future growth, it
still could be a preliminary yardstick for short listing funds.
• We would recommend that you select the fund that has around 25 % CAGR since inception and has shown consistency in last 1 and 2 years performance too.

3) AUM: • We would recommend that you select a mutual fund that has an AUM of 500 Cr or more. It
ensures that the fund has enough liquidity to buy at right times rather than being bogged down by
the pressures of redemption, when the market falls.

Taxation Benefit investing in Mutual Funds

»The amount invested in tax-saving funds/Equity Linked Saving Schemes (ELSS) is eligible for deduction under Section 80C upto a limit of Rs.1,00,000/- (in a financial year).
»Dividend from Mutual Fund Schemes is Tax-Free in the hands of the Investor/receipient.
»Indexation Benefit under Long term Capital Gain in Debt schemes.

Types of risks associated with Mutual Fund Investment

»Riskis an inherent aspect of every form of investment. For Mutual Fund investments, risks would include variability, or period-by-period fluctuations in total return.

»Market risk: At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. This change in price is due to 'market risk'.

»Inflation risk: Sometimes referred to as 'loss of purchasing power'. Whenever the rate of inflation exceeds the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Credit risk: In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?

»Other risks associated are:
• Investment risks
• Liquidity risk
• Changes in the government policy.