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.

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.

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.

|