Mutual Funds
Mahalaxmi Investment provides you online and offline Investment in all Mutual Fund Companies.
A mutual fund is an open-end professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.
Mutual funds have advantages and disadvantages compared to direct investing in individual securities. Advantages of mutual funds include economies of scale, diversification, liquidity, and professional management.
Mutual funds are also classified by their principal investments as money market funds, bond or fixed income funds, stock or equity funds, hybrid funds or other. Funds may also be categorized as index funds, which are passively managed funds that match the performance of an index, or actively managed funds. Hedge funds are not mutual funds as hedge funds cannot be sold to the general public and lack various standard investor protections.
Types of Mutual fund
- Equity or Growth Fund – The primary objective is wealth creation or capital appreciation.
- Income or Bond Or Fixed Income Funds – These are relatively safer investments and are suitable for Income Generation.
- Hybrid Funds – These invest in both Equities and Fixed Income, thus offering the best fo both, Growth Potential as well as Income Generation.
Creating wealth through mutual funds:
what is wealth creation? In the simplest sense – a desire to be rich, a desire to have control over the aspects that effect our financial life, a desire to command respect with the control, our money path and having more than sufficient funds to cater all are needs in future. Through mutual funds we can create wealth and also forgo the market risk factor by a technique called averaging which can be achieved through Systematic Investment plan (SIP) and Systematic Transfer Plan (STP).
SIP (SYSTEMATIC INVESTMENT PLAN)
In SIPs, a fixed amount of money is debited by the investors in bank accounts periodically and invested in a specified mutual fund. The investor is allocated a number of units according to the current Net Asset Value. Every time a sum is invested, more units are added to the investors account. SIP follow the rules of Rupee Cost Averaging.
Rupee Cost Averaging–
Consider an example: Mahesh invests Rs 10,000 each month in a SIP of an equity mutual fund. Say, the markets are volatile for a particular period. His Investments would look like below.
| No. of SIPs | Month | NAV | No. of Units (Amt./NAV) |
| 1 | June | 100 | 100 |
| 2 | July | 100 | 100 |
| 3 | August | 90 | 111.11 |
| 4 | September | 110 | 90.9 |
| 5 | October | 98 | 102 |
| 6 | November | 100 | 100 |
| Total | 598 | 604.01 |
The average NAV cost per unit by rupee cost averaging comes lower to Rs 99.6 (Rs 598/6) instead of Rs 100 with 604.01 accumulated units. Further, if Mahesh does not choose the SIP method and would have made a lump sum investment instead, then her number of units in June would have been 600 (Rs 60,000/Rs 100) according to the NAV of June.
Now, let’s see the value of her investments, in both cases, 6 months down the line in November (NAV is Rs100). If she would have chosen the lump sum method, the value would have remained the same at Rs 60,000 (600 units multiplied by NAV of November). On the other hand, with rupee cost averaging in the SIP method, the value would be Rs 60,401 (Rs 604.01 multiplied by the NAV of November), which is higher than the lump sum option.
The SIP method of mutual funds works on the principle of rupee cost averaging. It helps mitigate the “timing” factor and if you invest regularly, irrespective of the market level, it helps you earn higher potential returns.
