What is Mutual Fund?
A scheme in which money is collected from people and invested in various asserts, such schemes are called mutual funds. These. Funds are usually invested in financial securities like shares and money market instruments like certificate of deposit and bonds. Or in other words Mutual fund is like a trust pool where investor with same interest invest money.
Types of Mutual Funds.
Mutual funds are of various types depending upon how they invest. Given below are some of its types in details.
- Open-ended- An open-ended mutual fund is a pooled assets which allows withdraw and new investment from pool to investors which results into theoretically having unlimited number of potential share outstanding. IN open-ended mutual funds shares are not traded on exchanges, they are priced at their portfolio’s net asset value (NAV) at end of each day. Open-ended funds are always open for investment hence the name open-ended mutual funds as long as the buyers wants them. If any new buyer purchases the shares it creates new -replacement-shares and if any existing investor sells the shares it takes them out if circulation. When fund investor management feels that the fund assert have raised to quiet a larger amount it gets closed for new investors.
- Closed-end -IPO (Initial public offering launches the closed -end mutual fund and sell it in open market. The closed-end Mutual funds are traded on exchange and are more liquid. Closed-end funds invest in stocks, securities or in real estates. Closed -end mutual funds are priced once a day
- Interval- An interval fund is a type of closed-end Mutual fund that allows to investors to buy mutual funds periodically from shareholders. Shareholders usually do not require to sell their shares. It gives high returns to investors and can be sold back to fund at NAV .Fees of interval mutual funds are higher liquidity is low and product complexity is high as compared to open -end mutual fund.
Know more about Registration of Mutual Fund with SEBI
Depending upon the investment goals mutual funds are further classified into following types
- Balanced funds – Risk are minimum in this types are a type of mutual fund investment, which is done in both equity as well as fined income securities.
- Liquid funds – Liquid funds invest in government securities and fixed income bonds
- Income funds- Risk is maximum in this type and they aim to provide high returns to investors
- Growth funds- This funds aim capital protection
Based on geography they are classified as
- Domestic funds
- International funds
- Global funds
Structure of A Mutual Fund
- Sponsor- Any Mutual fund is set up by sponsor or trust, they are like promoter of company they appoints board of trustees ,the assert management committee and also appoints the
- Board of trustees- Board of trustees are appointed by sponsor to protect the interest of sponsors also to bide all the rules of Securities Exchange Board of India .Board of trustees should consist of at least four independent directors. Effective management of funds are their one of the major responsibility.
- Assert Management company (Amc)/fund house- They are responsible for day to day operation and also management of funds for trustees they are appointed by board of trustees 40% of its net worth a should be contributed by the sponsors.
- Custodian- One who hold custody of all shares and securities by AMC .He is responsible for the investment accounts of fund house.
How to save child’s future through Mutual funds ?
When it comes to saving your child future it is extremely important to keep below mentioned facts in your mind before investment .So that your child can pursue his/her dreams without any obstacles. Its better to plan from early days as you will have sufficient time to gather funds for your child’s dream Also it will keep you calm as you would making a small investment from a longer time .Once you start investing ,maintain continuity ,don’t leave it in middle or lapsing
- Know the Investment target– The approximate cost of getting a degree from foreign college or any higher education costs around INR 30-45lakhs. Keeping in mind the increase in cost after 10-15years the cost can go even higher If your child is planning to do degree course in India and go for further studies then 18-25lakhs would be required. Also if your child wants to step up any kinds of business then some sort of backup will be needed. So be clear with your target before Don’t just start investing, know your goals, and choose the plans accordingly and wisely to reach your goal. Having a clear idea about your goal is extremely important
- Make an Investment plan- Any education loan won’t give you 100% loan you need to arrange for hostel fees and many other charges which does not comes under your education loan scheme. So have at least preparation of 50% of the total expense
- Select mode of investment- SIP and lump sum can be one of the choices you can make to save money .One can start SIP and start saving some amount. One can start SIP with a smaller amount of Rs 500. Once your income grows or you are able to manage your expenditure you can take sip top -ups and save more. If you are adding top ups every month, the end product will definitely result into some bigger amount then expected. If in case if you have a large amount and you want to invest altogether than you can choose lump sum.
- Take a life insurance plan for yourself- Life insurance can be very helpful for your child to pursue his/ her dreams in your absence .So along with education planning life insurance is must for every individual.
- Use the ultimate tool called SWP- SWP (Systematic withdrawal plan) can be one of the option you can ask your fund house to provide you money on pre –defined intervals. You will be allowed to withdraw the required amount also your funds will keep growing .Also keep reviewing your investment portfolio to avoid bad investment and to stay on a positive note on your investment journey.
To save your child’s future without any hurdles or problems it is very important to start investing in funds which gives you specific returns when you needs and also increases your investment. In your absence also your child’s future will be secured and would get to follow his /her dreams and passion without worrying about the capital needed. The earlier you start the more time you will have to cherish their dreams ,along with investment in different funds it is important to maintain continuity investment and set long term clear goals ,as being a parent you would always want best for your children’s, and for best you would need capital for securing your child future so invest in various funds and built your mutual fund portfolio by adding various types of funds which will help in reducing the risk of losses and increasing the profits ,
Note- before investing in mutual funds or building your portfolio ensure your Risk tolerance and learn about the various funds available in the market and invest according to your needs so that your investment does not fall short for your child’s future.
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