What is mutual funds And What is Share Market ? | Beginner 

What is Mutual Fund And What is Share Market ? For the Beginner

Most of the time we really do know . Mutual Fund is Low in risk and Safe Because, In mutual fund their are many people who invest on a particular Subject. And in Share Market we are alone for investment , so risk value is always in high position.   But Knowledge and patience will came make you a great investor. And my Business Article Just Base On your Mutual Funds & Share Market Interest which is subjected to market risk.

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What are mutual funds?  A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt (mutual funds are subjected to market risk) . The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s  (mutual funds advisor ) ownership in the fund and the income it generates. This is the mutual funds advantages

What is Share Market ?

share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include securities listed on a public stock exchange, as well as stock that is only traded privately, such as shares of private companies which are sold to investors through equity crowdfunding platforms. Investment in the stock market is most often done via stockbrokerages and electronic trading platforms. Investment is usually made with an investment strategy in mind.

Why do people buy mutual funds?

Built-in diversification When you buy a mutual fund, your money is combined with the money from other investors, and allows you to buy part of a pool of investments. A mutual fund holds a variety of investments which can make it easier for investors to diversify than through ownership of individual stocks or bonds.

Diversification or “Don’t put all your eggs in one basket.” Mutual funds typically invest in a range of companies and industries. This helps to lower your risk if one company fails.

Affordability. Most mutual funds set a relatively low dollar amount for initial investment and subsequent purchases.

Liquidity. Mutual fund investors can easily redeem their shares at any time, for the current net asset value (NAV) plus any redemption fees.

What is the meaning of professional management or mutual funds advisor ?

Meaning of Professional Management or mutual funds advisor refers to the seasoned approach in administering the organization. … They have the professional qualifications, administrative & technical skills and also the good amount of experience in managing business affairs and it,s all about mutual funds are subject to market risk please read

What types of mutual funds investment ?

Most mutual funds fall into one of four main categories – money market funds, bond funds, stock funds, and target date funds. Each type has different features, risks, and rewards.

1.Money market /  Money market funds funds have relatively low risks. By law, they can invest only in certain high-quality, short-term investments issued by U.S. corporations, and federal, state and local governments. These funds invest in short-term fixed income securities such as government bonds, treasury bills, bankers’ acceptances, commercial paper and certificates of deposit. They are generally a safer investment, but with a lower potential return then other types of mutual funds. Canadian money market funds try to keep their net asset value (NAV) stable at $10 per security.

2.Bond funds have higher risks than money market funds because they typically aim to produce higher returns. Because there are many different types of bonds, the risks and rewards of bond funds can vary dramatically.

3.Growth funds focus on stocks that may not pay a regular dividend but have potential for above-average financial gains.

4.Income funds invest in stocks that pay regular dividends.

5.Fixed income funds / Equity funds / Stock funds These funds invest in stocks. Invest in corporate stocks. Not all stock funds are the same.These funds aim to grow faster than money market or fixed income funds, so there is usually a higher risk that you could lose money. You can choose from different types of equity funds including those that specialize in growth stocks (which don’t usually pay dividends), income funds (which hold stocks that pay large dividends), value stocks, large-cap stocks, mid-cap stocks, small-cap stocks, or combinations of these.

These funds buy investments that pay a fixed rate of return like government bonds, investment-grade corporate bonds and high-yield corporate bonds. They aim to have money coming into the fund on a regular basis, mostly through interest that the fund earns. High-yield corporate bond funds are generally riskier than funds that hold government and investment-grade bonds.

6.Index funds track a particular market index such as the Standard & Poor’s 500 Index. These funds aim to track the performance of a specific index such as the S&P/TSX Composite Index. The value of the mutual fund will go up or down as the index goes up or down. Index funds typically have lower costs than actively managed mutual funds because the portfolio manager doesn’t have to do as much research or make as many investment decisions.

7. Sector funds specialize in a particular industry segment.

8.Target date funds / Specialty funds These funds focus on specialized mandates such as real estate, commodities or socially responsible investing. For example, a socially responsible fund may invest in companies that support environmental stewardship, human rights and diversity, and may avoid companies involved in alcohol, tobacco, gambling, weapons and the military. Hold a mix of stocks, bonds, and other investments. Over time, the mix gradually shifts according to the fund’s strategy. Target date funds, sometimes known as lifecycle funds, are designed for individuals with particular retirement dates in mind.

9. Balanced funds These funds invest in a mix of equities and fixed income securities. They try to balance the aim of achieving higher returns against the risk of losing money. Most of these funds follow a formula to split money among the different types of investments. They tend to have more risk than fixed income funds, but less risk than pure equity funds. Aggressive funds hold more equities and fewer bonds, while conservative funds hold fewer equities relative to bonds.

10.Fund-of-funds These funds invest in other funds. Similar to balanced funds, they try to make asset allocation and diversification easier for the investor. The MER for fund-of-funds tend to be higher than stand-alone mutual funds.

Diversify by investment style

Portfolio managers may have different investment philosophies or use different styles of investing to meet the investment objectives of a fund. Choosing funds with different investment styles allows you to diversify beyond the type of investment. It can be another way to reduce investment risk.

4 common approaches to investing

Top-down approach – looks at the big economic picture, and then finds industries or countries that look like they are going to do well. Then invest in specific companies within the chosen industry or country.

Bottom-up approach – focuses on selecting specific companies that are doing well, no matter what the prospects are for their industry or the economy.

A combination of top-down and bottom-up approaches – A portfolio manager managing a global portfolio can decide which countries to favor based on a top-down analysis but build the portfolio of stocks within each country based on a bottom-up analysis.

Technical analysis – attempts to forecast the direction of investment prices by studying past market data.

You can learn about a fund’s investment strategy by reading its Fund Facts and simplified prospectus.

What are the benefits and risks of mutual funds?

Mutual funds offer professional investment management or mutual funds advantages and potential diversification. They also offer three ways to earn money:

Is a mutual fund high risk?

The level of risk in a mutual fund depends on what it invests in. Stocks are generally riskier than bonds, so an equity fund tends to be riskier than a fixed income fund. Plus some specialty mutual funds focus on certain kinds of investments, such as emerging markets, to try to earn a higher return.

5 types of risk affecting mutual funds

Every type of investment carries some kind of risk. Even not investing involves risk – opportunity risk, or the risk that you could have made more by investing than by sitting on the sidelines.

Market risk

The risk that you will lose some or all of your principal. As markets fluctuate, there is always a possibility that the mutual funds you hold might be caught in a decline.

Inflation risk

The risk of losing purchasing power. If your mutual funds gain 5% in a year and the cost of living goes up by 2%, you are left with a real return of only 3%.

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Interest rate risk

The risk that rising interest rates will cause your mutual funds to decline in value. When interest rates rise, bond prices decline and bond mutual funds may also decline as a result.

Currency risk

The risk that a decline in the exchange rate will reduce your gains (or add to losses). Even if the value of a foreign-currency-denominated fund goes up, a decline in the foreign currency can reduce your returns when they are exchanged back into Canadian dollars.

Credit risk

The risk that the issuer of a bond or other security won’t have enough money to make its interest payments or to redeem the bonds for face value when they are due. Securities with a higher risk of default tend to pay higher returns.

Fortunately, not every type of mutual fund is susceptible to every kind of risk. Equity funds, for example, are subject to market risk but help protect against inflation risk. Similarly, fixed-income funds are susceptible to interest-rate risk but offer some protection against market risk. By diversifying, you can reduce the impact of risk on your portfolio as a whole.

 

Dividend Payments. A fund may earn income from dividends on stock or interest on bonds. The fund then pays the shareholders nearly all the income, less expenses.

Capital Gains Distributions. The price of the securities in a fund may increase. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, the fund distributes these capital gains, minus any capital losses, to investors.

Increased NAV. If the market value of a fund’s portfolio increases, after deducting expenses, then the value of the fund and its shares increases. The higher NAV reflects the higher value of your investment.

All funds carry some level of risk. With mutual funds, you may lose some or all of the money you invest because the securities held by a fund can go down in value. Dividends or interest payments may also change as market conditions change.

A fund’s past performance is not as important as you might think because past performance does not predict future returns. But past performance can tell you how volatile or stable a fund has been over a period of time. The more volatile the fund, the higher the investment risk.

How to buy and sell mutual funds

Investors buy mutual fund shares from the fund itself or through a broker for the fund, rather than from other investors. The price that investors pay for the mutual fund is the fund’s per share net asset value plus any fees charged at the time of purchase, such as sales loads.

Mutual fund shares are “redeemable,” meaning investors can sell the shares back to the fund at any time. The fund usually must send you the payment within seven days.

Before buying shares in a mutual fund, read the prospectus carefully. The prospectus contains information about the mutual fund’s investment objectives, risks, performance, and expenses.

How to Buy & Sell Mutual Funds

Mutual funds have been around in India for nearly three decades now, but the number of people who actively buy and sell mutual funds in the country remains abysmally low as a percentage of the population.

The fundamental reason for poor participation in the mutual fund market is the lack of awareness; not just about the benefits of mutual funds, but also the knowledge of how to buy and sell them.

You have tackled the question of how mutual funds help you achieve your investment goals in earlier chapters. Now, let’s go through the process of buying and selling mutual funds.

HOW TO BUY MUTUAL FUND?

You could invest in a Direct Plan online on the website of the mutual fund or the Mutual Funds Utility (MFU) portal, OR through a physical application form, which can be submitted at the investor service centre/branch of the concerned mutual fund or its its registrar and transfer agent (RTA).

HOW TO SELL MUTUAL FUNDS :

If you thought the amount of research done for buying a mutual fund was hard work, you’re about to repeat a lot of such work while selling your mutual funds. You need to do your homework and sell your mutual funds only if the timing is right to ensure that you always make a profit on your sale.

Some instances for when mutual funds ought to be redeemed:

Most people sell their mutual funds to finance some immediate or upcoming financial requirement, like buying a house or car, paying for children’s education, a health crisis or even an upcoming foreign holiday.

Another good time to sell off your mutual funds is when your investment requirements undergo a change – this could be due to inherent growth or changes in your existing portfolio or due to a life event that reorganizes your priorities.

If the performance of a mutual fund dips consistently below expectations and other comparable funds for a sustained period of time. Here, ‘sustained’ refers to a time period of 1 to 5 years at least.

Changes on the part of the mutual fund – a reset of its investment objectives or strategy, a rejig of its favored stock picks or sectors in which it invests or even the departure of a trusted fund manager often leads to the sale of such mutual funds by investors.

Do you see yourself in any of the scenarios?

Then it’s probably a good idea to sell your funds and cut your losses early on.

There are two ways to sell your mutual funds – to another investor or back to the mutual fund. The latter is called redemption of mutual fund.

Mutual funds are best redeemed the same route through which they are purchased. This means you could choose to redeem them online or offline, through an agent or broker or directly by yourself.

However, remember to check for any exit load or charges for sale of your MF units. This will be deducted from your total proceeds from the sale.

COMMON MISTAKES TO AVOID WHEN BUYING AND SELLING MUTUAL FUNDS

Mutual funds are managed portfolios of stocks, bonds and securities that offer investors the perks of participating in the stock market, but with a limited exposure to the risks involved.

Since this is the case, the need for 24 x 7 monitoring of your investments is probably unnecessary. However, this does not mean that you go into this process of investing in mutual funds completely blind

 

 

Understanding fees

As with any business, running a mutual fund involves costs. Funds pass along these costs to investors by charging fees and expenses. Fees and expenses vary from fund to fund. A fund with high costs must perform better than a low-cost fund to generate the same returns for you.

Even small differences in fees can mean large differences in returns over time. For example, if you invested $10,000 in a fund with a 10% annual return, and annual operating expenses of 1.5%, after 20 years you would have roughly $49,725. If you invested in a fund with the same performance and expenses of 0.5%, after 20 years you would end up with $60,858.

It takes only minutes to use a mutual fund cost calculator to compute how the costs of different mutual funds add up over time and eat into your returns. See the Mutual Fund Glossary for types of fees.

 

Avoiding fraud

By law, each mutual fund is required to file a prospectus and regular shareholder reports with the SEC. Before you invest, be sure to read the prospectus and the required shareholder reports. Additionally, the investment portfolios of mutual funds are managed by separate entities know as “investment advisers” that are registered with the SEC. Always check that the investment adviser is registered before investing.

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