Mutual funds are a great investment opportunity for the investors who have no time to look and research about the market and don’t want to risk the money by own research. Mutual funds history tells us that though there might be some loses in the mutual funds in the short term, in the long run, good mutual funds always gave consistent returns to the investors. These funds are managed by experts with long experience. In this article, we will make you understand all the Basics of Mutual funds in detail and also help you in clearing all the unknown terms which otherwise are difficult to understand.
Most of the investors invest in mutual funds without understanding anything about mutual funds. They invest in the funds just because all other people have suggested that they are a good investment. Investors like them are never worried about what the funds are and don’t know any details about the mutual funds.
But remember that it is your money you are investing in the mutual funds and it is important that you have to understand all the details before investing. it will help you in identifying the best investment opportunities and take decision with proper knowledge. Investing without knowledge will only make you a victim if the case of downfall in the prices.
The basic and important question that is asked by all the investor, even the new investors is which type of mutual funds are good for returns based on different financial goal one wanted to achieve. In this article, we will also understand the different types of Mutual funds and how each has its own advantages which suit the type of financial goal one wanted to achieve.
Basics of Mutual funds: Mutual funds are financial instruments that allow a large number of individuals investors to pool their money into a large pool of money. This pool of money which is subscribed by multiple investors is invested in different instruments in the capital markets such as company shares, gold, bonds and others. Now the returns(such as dividends or others monetary returns) from these investments(shares, gold, bonds and others) is given back to the investors who have invested their money in the pool in proportion to their investment amount. This pool of money is managed by experienced professionals and experts who work for a company called Mutual Fund company. This company will in time deduct all the charges such as the operating expenses, salaries of the professionals and other expenses from the returns(pool of money by investors) of the money.
The popular Mutual funds companies in India are ICICI Prudential, Aditya BirlaTata Mutual Funds, Reliance MF and others. Each company in turn have large different types of mutual funds. Cumulatively there are thousands of mutual funds in India managed by the professional. It is important that form such large number of mutual funds available, you select the best possible one for achieving the type of financial goal you intended for.
TOP 5 Mutual Funds in India- Basics of Mutual funds
When investors pool their money into a single fund, then each investor is given some units of the fund based on the amount the investor invested in the fund. This allotment of Number of units of a mutual fund depends on the price of mutual fund popularly called as Net Asset Value(NAV).
We calculate the NAV of a mutual fund by dividing the total net assets by the total number of units issued. To get the total net assets of a fund, subtract any liabilities from the current value of the mutual fund’s assets and then divide the figure by the total number of units outstanding. The resulting figure is the NAV of the mutual fund.
So, the mathematical formula for NAV is:
Assets – Debits / Number of outstanding units = Net asset value (NAV)
The NAV of a mutual fund is always calculated at the end of the market day. This is because the market value of securities changes daily. Hence, the NAV of a mutual fund also changes daily.
Example 1 – Basics of Mutual funds
Suppose the market value of the securities of a mutual fund scheme is Rs 500 lakh. The mutual fund issues 10 lakh units of Rs 10 each to its investors. So, the NAV per unit of the fund is Rs 50