Thursday, 8 September 2016

Mutual Fund SIP

Mutual Fund is a pool of money, collected together from many persons/investors and is put in a fund. Mutual Fund is a collective investment scheme.  For investors there are long term schemes and short term schemes.When investment is in long term scheme the risk reduces but in short term schemes, the investment should be in such short schemes where there will be good returns. Mutual Fund in itself is a balance product. There is a mix of equity and debt in Mutual Fund so the risk reduces to a great extent. When investment is only in equity fund then risk increases. Mutual Fund is a pool of investment scheme. There are various schemes and for each scheme there are separate Fund Managers.  The Fund Managers make a Portfolio of companies that is there are various companies in the Portfolio where the Fund Manager will invest the investor's money in different percentage and also the percentage of return is different in case of different companies.

Every individual may have any of these three goals:

1. Child Future
2. Retirement
3. Wealth Creation

As per the individual's needs/interests schemes are decided for them and accordingly the Fund Manager of that respective scheme will invest the money wisely in different companies. SEBI and AMFI makes the guidelines for Mutual Fund investment that is, not more than a particular percentage one can invest in one company.

38 companies are working in Mutual Fund. In Sensex (Bombay Stock Exchange) top 30 companies index is there. In NIFTY (National Stock Exchange) top 50 companies index is there.  With the Sensex up and down it means that it gives the average performance of these 30 companies. Similarly with NIFTY up and down that means it gives the average performance of these top 50 companies.

There is open-ended and close-ended investment in Mutual Fund. In open-ended investment the investor can enter and exit according to his/her wishes but in close-ended investment in Mutual Fund the investor can enter but exit only as already decided. Open-ended investment is better than close-ended investment in Mutual Fund.

There are two ways to invest in Mutual Fund and they are:
1. Lump sum investment
2. Investment through SIP. SIP is Systematic Investment Plan which is monthly mode of investment where NAV is declared.

Types of Mutual Fund is mainly

1. Equity Fund
2. Balance Fund
3. Hybrid Fund.

In terms of risk, in Equity Fund there is high risk but also high gain.
In Balance Fund there is moderate risk.
In Hybrid Fund which is also called Debt Fund, there is low risk. Debt Fund is equal to a Fixed Deposit. When you are investing in Hybrid Fund, some investment is made in Debt Fund and some investment is made in Equity Fund.One should invest in Hybrid Fund through SIP and it is advisable to invest for 3-5 years. One may get 7% - 9% return on Debt Fund and near about 12% return on Equity Fund. So one may get a total of 19% return on their investment in Hybrid Mutual Fund.

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