Mutual Funds - All you wanted to know


1.What is a Mutual Fund?

Basic Lessons on mutual funds - (for complete freshers to MF)

2.Where does my money invested in a MF go?

Depending on the scheme you choose, your money is invested in debt / equity / both.
This will depend on the theme of the fund that you invest in.

3.What is the advantage of investing in equity through MF?

a. You make use of expertise of fund manager's at a reasonable cost.
b. Participating in a wide spectrum of shares even with a lesser amount.
c. Transparent and well regulated.

Most importantly you "outsource" your business of investing to a professional.

4.Is less NAV cheaper to invest?

Net Asset Value (NAV) should not be a deciding factor when you start to invest.Say there are two funds (both same category funds), scheme A has NAV of Rs 40 and Scheme B Rs 16. You should not invest in scheme B because it has a lower NAV.

5.What should I analyse before Investing?

a. Track record of the fund.
b. Track record of the fund House and the fund manager.
c. Fund's performance during volatility and bearish phases.
d. Average returns over a period of at least 3-5 years.
e. Expense ratio of the fund.
f. Ratings by researchers (eg.value research)

6.Is it good to invest in NFO?

New Fund Offers(NFO) are new investing schemes offered by fund houses from time to time. Do not invest in them unless they are conceptually different and are a unique offering.
(Beware of NFOs )

7.What are the advantages of a balanced fund?

Balanced Funds combine the advantage of both debt and equity.They are less riskier when compared to pure equity funds.
(Balanced Fund – Advantages )

9.What should be the time period for investing in equity funds?

Longer the better.Minimum of 3-5 year time horizon is required, to expect reasonable returns.

(Time in the market is more important )

10.Should we keep churning the equity MF portfolio?

Do not keep switching in and out of the funds unless seriously warranted. Frequent churning will make your broker rich (Not you).

11.What is the ideal number of funds one should hold?

Should be reasonable . Not too many (like 15-20 and above) nor too less (like 1 or 2).

12. Suggested approach to invest in equity funds?

( Equity MF Investment Approach)

Please write to ideas.money@gmail.com if you have any questions


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1 comment:

Karthik said...

very informative article.

Above all , womderfully presented for an new investor like me

Thanks.

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