Mutual Funds: An Investment Tool For Small Investors

Human beings from their very inception want to earn and save something for unwanted situations. In the earlier stage, he puts his earnings under the soil to keep it safe from being stolen. Later banking system was developed and subsequently different kind of instruments for investment is being used. 

Nowadays, investments in share market instruments are much preferred by big as well as small investors. Everyone wants to earn extraordinary returns from share market booms. And Mutual Funds are one of such ways through investments in share markets are being carried out by small and marginal investors. A Mutual fund is an investment company that issues shares to the public. The money it receives from shareholders is pooled and invested in a wide range of stocks, bonds, or other money market instruments to meet specific investment objectives. The various instruments included in a fund's portfolio are handled by professional money managers in line with the stated investment policy of the fund.

The essential purpose behind the Mutual Fund is to secure two important benefits for small and retail investors, viz. 

(i) minimization of risk through diversification, and 

(ii) professional management of invested funds. 

The risk associated with investment can be minimized by spreading the investment over a dozen, or even hundreds of companies, which seems to be impossible for small investors. Thus, diversification of investment reduces risk. 

Professional money management is required to become successful in the game of investment. Most of small investors can not devote the time and resources required for managing their investments. This is easily carried out by fund managers, thus producing better results.

Mutual funds in India are structured as follows:

Each mutual fund has a Board of Trustees, an Asset Management Company (AMC or the manager) and unit holders. In India, we also have a promoter or sponsor who takes the initiative of starting a mutual fund but has no active role after the fund has been launched. The sponsor remains only a shareholder of the AMC. 

As per the Securities and Exchange Board of India (SEBI) guidelines, the effective control of the AMC is not with the sponsor but with the Board of Trustees. SEBI guidelines provide the framework within which mutual funds in India have to operate. Maximum limits have been prescribed for management fees and other chargeable expense; SEBI also regulates many other aspects of mutual funds' operations and policies.

Major types of mutual funds are:

(1) Equity Schemes: investing primarily in equities with several plans such as growth plan, dividend plan, and dividend reinvestment plan; (2) Bond Schemes: invest in government and corporate bonds of minimum and long duration, thus arising their income from interest. (3) Balanced Schemes: invest in both equity and bonds based upon the specified policies and investment objectives; (4) Money Market Schemes: a relatively recent phenomenon in India, such funds invest in very short term money market instruments at lesser risks.

Once a mutual fund scheme has been floated, the buying and selling prices of its shares, known as units, from day to day are related to the Net Asset Value (NAV) of the units. A mutual fund is required to calculate the NAV once a day based on the closing market prices by valuing all assets and liabilities at their current values.

NAV per unit = (Market Value of Assets - Portfolio Liabilities)/No. of shares outstanding

SIP: an emerging trend

A systematic investment plan (SIP) commits the investor to invest a specified amount every month (or every quarter) in the units of a fund's equity scheme. The number of units bought each month for the investor under the plan will depend on the ruling price: fewer units are bought when the price is high, and more units are bought when the price is low. This is a built-in advantage of SIPs. It averages out investor's buying price over the entire period of holding. The SIP resolves a dilemma often facing investors due to ups and downs in the market price. The investors find it difficult when to invest in the equity scheme.

The investors should not take it for granted that SIP is always advantageous. The price level at the starting point is particularly important. The price level at the end of the period chosen is also critical. The rigidity of most SIP schemes can be both inconvenient and disadvantageous to investors. The investors should avoid a situation of forced redemption of accumulated units at unduly low price by building some flexibility in the choice of redemption date.

Hence, an investor should choose from among the mutual funds those which have a record of consistently good performance and possess characteristics (e.g. industry composition of investments) which will help to achieve good long-term performance of investments.

Happy Investing

Mutual Funds Investment Basics

Almost everybody has the ambition to get rich without lifting a finger - that's because there's plenty of us out there that are driven by laziness and greed. We like to find ways for having our cash work for us, or apply the Law of Leverage, which is to multiply our efforts through others. A classic example of that would be an Egyptian Pharaoh having his slaves build infrastructure or gather the rice grains which he uses for sale/trade - he doesn't do anything, but gets all the work done and gets richer and richer. You're not a Pharaoh, so how do you get rich? Well one way would be putting your money in a median that can help you reach that particular financial goal.

One "vehicle" that can get you there are mutual funds, how does this work? Simple: what you do is buy mutual funds from a mutual fund company or broker. From there, the company that you've entrusted your cash with invests it into a variety of short term investments, like the following: assets, bonds, stocks and securities. What happens next, if all does go well, is you receive dividends for each of the mutual funds you've purchased, which is your share of the profit made off it. Some people (many perhaps) find the whole process scary because they have no idea what to do first or feel that it's too much risk to take.

Fear not old friend, your investment is being managed by the company's team of investment professionals - these guys know exactly what they're doing and find the best ways possible to ensure that you make money. It's like having a symbiotic relationship with them: if they do good, you do good, heck all of you do good. Usually an investment manager does the buying and selling on your behalf, making sure all goes in your favor. As the investments diversify, the risk of loss gets lower and lower, which is clearly what everybody wants. There are three types of mutual funds, the first being: equity funds - which is basically investing in common stocks.

This is considered to be very risky, but it can also mean lots of money for you. The second type are the fixed income funds, which is a lot safer due to the fact that they're basically government and corporate securities. Here you don't take that much risk, which in some cases could mean that you don't earn that much (as compared to investing in equity funds). Lastly, we have balanced mutual funds, which consists of stocks and bonds. This type of investment is the safest amongst the three stated here, but it also is the "slowest earner" of all.

The discussion of the three kinds of mutual funds brings up an old saying: "no risk, no reward" - I forgot who said it, but I do know that it does apply to the basic "operating principle" of mutual funds. Important reminder: your shares can be sold back to the broker or to another customer at your will. If your interested in getting into this game, then I suggest you do more research about the different companies you could invest in.

The author of this article Rick Goldfeller is an underground Financial Analyst who has been successfully running campaigns for several wealthy clients. Rick finally decided to go public and share his knowledge and experience through his website http://www.finanzine.com. You can sign up for his free newsletter and join his coaching program.

Invest Your Money In Mutual Funds

Investment Tips: People nowadays are very particular about financial matters. When it comes to money, they want to make sure they have investments. Investments can be made in different ways. Other people are investing their hard-earned money in real estate. They believe in the power of real state to generate a lot of profits. Many are purchasing land which appreciates in value in the long-run. Another kind of investment like dealing with stocks is also profitable. When you know the right strategies and techniques in the stock market, you'll surely find your fortune in stocks. People are finding ways on how to produce more money and be financially independent.

They want to look at many possibilities of good investments. There is another type of investment for you to explore. You've probably heard of mutual funds. Investing in mutual funds is also considered as a wise way of putting your money to good use. If you don't know how to manage your investments yourself, this kind of investment is really for you. A mutual fund is a form of collective investment scheme wherein a professional manages the fund. The money invested by the investors will be pooled into one and the fund manager will invest it in stocks, money-market instruments, bonds and other kinds of securities.

The majority of the funds' portfolios are under the supervision of a professional. These professionals have vast experience in the investment field. They will appropriately invest the money into securities which will greatly benefit the investors. The performance of the manager is very well a determinant of the outcome of the fund. If the manager has managed well the fund, everybody will surely be happy and wealthy. That's why it's imperative for investors to check the performance of the manager. You should determine the manager's capability in handling the fund. The investment portfolio is usually diversified, meaning it should not concentrate on one investment alone.

A portion of the fund can be on high-risk investments while others are invested on low-risk securities. The manager typically invests a large amount of money in companies with outstanding financial performance. The task of the professional is essential in the growth of the fund. The mutual fund company do research and study the trend in the financial market in order to know where to invest. Every company listed in the stock market is thoroughly researched. Its annual report is also carefully studied. There are many kinds of mutual funds, like open-ended, equity and exchange-traded and others. There are some which are invested for a particular industry.

Like for example, a Pharma fund is invested only in pharmaceutical companies. Investment in a mutual fund doesn't necessarily require you to shed a big amount of money. Even in small amounts, you can now invest; you just have the option to invest every month if you want to. You can invest your hard-earned money in whatever means you know. Investing in mutual funds is one way. Just remember that your money is in the hands of a professional. They will manage it efficiently and effectively for you to reap great benefits.

The author of this article Rick Goldfeller is an underground Financial Analyst who has been successfully running campaigns for several wealthy clients. Rick finally decided to go public and share his knowledge and experience through his website http://www.finanzine.com. You can sign up for his free newsletter and join his coaching program.

Protect Your D'Mat Account

If you have a D'Mat Account, it is necessary to get your account statement periodically and check your purchase and sales details. You may fall in trouble if there is any discrepancy in your D'Mat account. 

In recent times there have been several cases also where gangs of cheats have duped investors by opening a fake bank account and fake address and get shares sold and encashed the money. Recently Lucknow, the capital of Uttar Pradesh has caught such gangs who had contacts with brokers, Mutual Funds officials or clerks, and members of NSDL and CDSL, duped lacs of shares of investors. The nexus between the gang and clerks and officials of brokers, and mutual funds officials played an important role in this episode. The whole operation of cheat was very simple. They simply get a photocopy of the initial account opening form of investors of Mutual Funds and D'Mat account holders and then get a forged bank account open in the same name and used to apply for a change of address in D'Mat and Mutual Fund and sell shares/ Units of Mutual Fund and subsequently withdraw money from a forged bank account. According to news Bank officials also helped the gang members by helping to open a forged bank account.

So I would suggest all investors of Mutual funds, and D'Mat account holders get their account statements periodically and crosscheck their details of investment and if there is any discrepancy found they should immediately contact the respective company and get it rectified. After all, it is your hard-earned money and if you are not careful then you may become a victim of such fraud.

Financial Planning For Financial Security

No one likes to imagine that illness or death could compromise their family’s financial security. But, tragically and all too often, these things devastate families and leave them in a vulnerable financial position just when they need the most security. Spending only a few hours preparing for such a scenario might save your family needless trouble. Once, only fathers needed to worry about this, but today with two-earner families comprising the majority of American families, both partners should actively participate in planning to ensure financial security for themselves and their children.

At the very least, each partner should have a simple will specifying who will receive assets and who will take guardianship of the children. Financial professionals advise naming one person to control the financial assets and another person to take physical custody of the children. You can prepare your own wills by purchasing a kit online or at an office supply store. Although this is a good short-term solution, you should consult a lawyer as soon as possible, particularly if you have a lot of assets or there is disagreement in your extended family about who should serve as guardians for your children.

Adequate life insurance is also essential to protecting your family. The majority of Americans do not carry enough life insurance to ensure that their family will enjoy the same quality of life after their death. Simple term insurance is adequate for most people’s needs. Whole life policies rarely provide the same level of returns as other investments, such as stocks. Many insurance companies have life insurance calculators on their websites which will help you determine exactly how much insurance you need. Be sure to take into account any insurance provided by your employer. If one spouse stays home with the children, they should also be insured since the surviving partner will need to pay for child care and household services.

Most Americans are unaware that it is not death, but disability that most frequently causes financial problems for a family. Check with your employer to see if they offer short and long-term disability insurance. If not, have your insurance agent quote you for this essential coverage that will protect you and your family if you can no longer work.

Finally, long-term care insurance will cover nursing homes or other types of ongoing residential care. Young people often overlook this coverage, thinking that it’s only for older people. However, head injuries, paralysis and other traumatic injuries often result in the need for long-term residential care.

Article source: ContentLog.com
Author : Jonathon Hardcastle writes articles on many topics including Finance, Business, and Education

What makes a good mutual fund

Mutual funds are popular. If you are not invested in one right now you are more than likely to be invested in one in the near future either directly or indirectly. Choosing a good mutual fund is important for maximizing your investment performance.
Like any other investment choosing a good mutual fund really depends on your needs. Also like any other investment mutual funds are a balance between risk and performance. The higher the risk you are willing to take the higher the potential profits. Investing in individual stocks is considered riskier than investing in mutual fund although the potential gains are higher. Mutual fund usually hedge individual stock risk by managing a large portfolio of stocks and other instruments. That balance also averages the gains.
There is no simple answer to what makes a mutual fund good as the question is fundamentally wrong. The right question is what makes a mutual fund good for you and the answer depends on what you are looking for. In order to choose a mutual fund you choose both know what your options are and also really know and understand what your needs are and how much risk you want to take.
One of the more common mutual funds that tend to perform well at a lower risk are index mutual funds. Like their name suggests index mutual funds value is attached to the performance of a specific index like the famous S&P 500. Index mutual funds are pretty simple to understand and to track and for the most part there is no big difference between different funds if they invest in the same index.
Other funds invest in stocks and other instruments. Most funds have a theme or a policy of how they invest. For example, a small cap fund invests in stocks of small cap companies and an technology fund invests in technology innovative companies. Themed mutual funds are managed by people who decide what to buy when to buy and when to sell each of the individual stocks. One of the most important things when choosing a mutual fund is to read about who manages its daily operations and who decides how the fund invests its money. Check how experienced the management is how long have they been with the fund and with other funds and how well have they done. Although a manager they did very well in the past can certainly fail in the future it is still statistically a better choice than an inexperienced manager or a manager who failed.
Since mutual funds have managers and other operation costs they have to charge some management fees. Usually, the management fee is expressed in a percentage that the fund takes for itself. If you are investing long term that fee is less important. If you are looking for short-term investments the fees can be significant and you should consider them when choosing the fund.
Education is your best tool when choosing a fund. Don’t be tempted to invest in a fund just because its headline says 25 per cent annual gain. Read about it read about the management read about its investment philosophy and maybe even look at its portfolio and randomly pick a few stocks it is invested in and judge for yourself if those were good buys or not.

Article Source: http://articlehideaway.com

Buy Gold and Silver Now - 7 Valid Reasons to Be Investing in Silver and Gold Bullion

By: Christina Goldman

It would appear, from the recent action in the financial markets, that all is well in the world once again. The price of crude oil has now plunged 20 per cent from its recent record high of $145 a barrel. Stocks are rallying. The dollar has firmed.

Experts are now saying that the real estate market has bottomed. The commodity bubble has burst. Oil is on its way down to $100 a barrel. And soon, the year-long credit crisis, housing slump and economic slowdown will be just an unpleasant memory. The future is so bright you have to wear shades, right?

Not so fast.

Before you rush out and trade your precious gold and silver for depreciating paper dollars, take off those rose-colored glasses and examine the real facts behind the hype. Here are seven valid reasons to be investing in silver and gold bullion:

1. The Weak Economy Is NOT Improving

Retail sales for the month of July were disappointing. Wal-Mart's 3% same-store sales growth came in below expectations. Yes, Costco's results were the one bright spot - up 10%. However, when you dig into the details, you'll discover that the reason for the strong growth was the increase in gasoline sales. Back those figures out and sales were up only 6%, less than consensus estimates!

Notably weak were the sales results of teen retailers. This doesn't bode well for back-to-school sales in August. Looks like a lot of kids will be returning to school, wearing last year's garb!

2. The Employment Picture Is BLEAK

Jobless Claims rose to 455,000. That's up from 448,000 the week before. Look for that figure to go up as job cuts by U.S. employers soared last month.

According to private placement firm, Challenger, Gray, and Christmas, Inc., layoff announcements are up 141% from a year ago. That's on top of the gloomy news unemployment figures reported by the Labor Department last week. The U.S. Economy has now lost jobs for seven straight months and the unemployment rate is at a four-year high.

3. Financial Markets Are STILL Unstable

Freddie and Fannie are seeing red. Both Freddie Mac and mortgage giant Fannie Mae missed earnings estimates by a wide margin, reported huge losses, and slashed their dividends.

If that wasn't bad enough, Freddie Mac now has a negative equity position. Translation: Shareholders would get absolutely nothing if Freddie were to pay down all of its debt and sell its assets. Fannie Mae's CEO predicts 'significant' losses in 2009 and will no longer purchase Alt-A mortgages, by year's end. These horrendous results increase the likelihood of a big government bailout.

4. The Housing Market Has NOT Bottomed

Mortgage delinquencies are getting worse. Mortgages that were issued during the 1st half of 2007 now have a delinquency rate of 0.91%. The delinquency rate for 2006 mortgages was 0.33%. These are prime mortgages, folks.

It has been estimated that 65% of sub-prime loans originated in 2007 will end up in default. This figure suggests that housing foreclosures will remain at record highs.

5. Inflation Is WORSE Than It Appears

The inflation monster is alive and well. The consumer price index (CPI) is up 5% through June. That is the biggest one-year increase since 1991. That statistic is even worse than it appears.

During the Reagan and Clinton terms, the way that rising inflation was measured was changed, in order to lower the official rate. If you calculate the CPI in the same manner that it was calculated in 1980, you would have to add 7% to whatever the published figure is. That would mean that the true rate of inflation is running at 12%. No wonder the average guy in the street is hurting!

Investors are betting that the drop in oil prices will tame the inflation monster. However, even with the recent correction oil prices are still up 61 per cent from where they were a year ago.

6. The Fed Will NOT Raise Interest Rates To Combat Inflation

The Federal Reserve is stuck between a rock and a hard place. As expected, the Federal Reserve held its fed funds target rate at 2%. The accompanying statement also reflected a rather dovish tone. The phrase 'diminished downside risks and increased inflation expectations' from the June 25th statement was nowhere to be found.

Fed funds futures are now pricing in just a 52% chance of a rate hike during the next to FOMC meetings. That's a fall from a prediction that was as high as 80 percent last week! Pimco's Managing Director Bill Gross said that rate hike talks are 'comical:'

"We're in a recession. When has the Fed ever raised rates in a recession?" he said. "Unemployment is headed toward 6 percent, mortgage rates on home buyers are at 7 percent, and these guys want to raise rates?"

7. Global Tensions are HIGH

Georgia's Offensive Move Is Risky. War broke out on Thursday in the strategically important area of Georgia, over control of South Ossetia. The price of oil seemed to take the situation in stride, doing absolutely nothing at all. At risk, however, is an international pipeline that runs close by, not to mention the possibility of the conflict setting off a wider war.

Gold and silver are now at their lowest level in six weeks, giving investors the perfect opportunity to buy. If you are still unconvinced that you should be investing in precious metals, just remember this:

History has provided us with many examples of paper money whose value has been destroyed. But, gold and silver have survived war, inflation, deflation, recession and depression. Silver and gold bullion are truly a safe haven for those smart enough to realize their true value.

Article Source: http://articlehideaway.com