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There are a wide variety of Mutual Fund schemes
that cater to your needs, whatever your age,
financial position, risk tolerance and return
expectation. Whether as the foundation of your
investment program or as a supplement, Mutual
Fund schemes can help you meet your financial
goals. The different types of Mutual Funds are
as follows:
Diversified Equity Mutual
Fund Scheme
A mutual fund scheme that achieves
the benefits of diversification by investing
in the stocks of companies across a large number
of sectors. As a result, it minimizes the risk
of exposure to a single company or sector.
Sectoral Equity Mutual
Fund Scheme
A mutual fund scheme which focuses on investments
in the equity of companies across a limited
number of sectors -- usually one to three.
Index Funds
These funds invest in the stocks of companies,
which comprise major indices such as the BSE
Sensex or the S&P CNX Nifty in the same
weightage as the respective indice.
Equity Linked Tax Saving Schemes (ELSS)
Mutual Fund schemes investing predominantly in equity, and offering tax rebates to investors under section 80 C of the Income Tax Act. Currently rebate u/s 80C can be availed up to a maximum investment of Rs 1,00,000. A lock-in of 3 years is mandatory.
Monthly Income Plan Scheme
A mutual fund scheme which aims at providing
regular income (not necessarily monthly, don't
get misled by the name) to the unitholder, usually
by way of dividend, with investments predominantly
in debt securities (upto 95%) of corporates
and the government, to ensure regularity of
returns, and having a smaller component of equity
investments (5% to 15%)to ensure higher return.
Income schemes
Debt oriented schemes investing in fixed income
securities such as bonds, corporate debentures,
Government securities and money market instruments.
Floating-Rate Debt Fund
A fund comprising of bonds for which the interest
rate is adjusted periodically according to a
predetermined formula, usually linked to an
index.
Gilt Funds -
These funds invest exclusively in government
securities.
Balanced Funds
The aim of balanced funds is to provide both
growth and regular income as such schemes invest
both in equities and fixed income securities
in the proportion indicated in their offer documents.
They generally invest 40-60% in equity and debt
instruments.
Fund of Funds
A Fund of Funds (FoF) is a mutual fund scheme
that invests in other mutual fund schemes. Just
as fund invests in stocks or bonds on your behalf,
a FoF invests in other mutual fund schemes.
Assets Management
Company: A highly regulated organization
that pools money from many people into portfolio
structured to achieve certain objectives. Typically
an AMC manages several funds –open ended/ close
ended across several categories- growth, income,
balanced.
Balanced Fund: A hybrid portfolio of stocks
and bonds.
Close Ended Fund: They neither
issue nor redeem fresh units to investors. Some
closed ended funds can be bought or sold over
the stock exchange if the fund is listed. Else,
investor have to wait till redemption date to
exit. Most listed close ended funds trade at
discount to the NAV.
Open Ended Fund: A diversified
and professionally managed scheme, it issues
fresh units to incoming investors at NAV plus
any applicable sales charge, and it redeems
shares at NAV from sellers, less any redemption
fees.
Entry/ Exit Load: A charge
paid when an investor buys/sells a fund. There
could be a load at the time of entry or exit,
but rarely at both times.
Expense Ratio : The annual
expenses of the funds, including the management
fee, administrative cost, divided by the fund
under management.
Growth/Equity Fund: A fund
holding stocks with good or improving profit
prospects. The primary emphasis is on appreciation.
Liquidity: The ease with which
an investment can be bought or sold. A person
should be able to buy or sell a liquid asset
quickly with virtually no adverse price impact.
Net Assets Value : A price
or value of one unit of a fund. It is calculated
by summing the current market values of all
securities held by the fund, adding the cash
and any accrued income, then subtracting liabilities
and dividing the result by the number of units
outstanding.
Interest Rate Risk: The risk
borne by fixed-interest securities, and by borrowers
with floating rate loans, when interest rates
fluctuate. When interest rates rise, the market
value of fixed-interest securities declines
and vice versa.
Credit risk: Credit risk involves
the loss arising due to a customer’s or counterparty’s
inability or unwillingness to meet commitments
in relation to lending, trading, hedging, settlement
and other financial transactions.
Capital Market risk : Capital
Market Risk is the risk arising due to changes
in the Stock Market conditions.
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