Mutual Fund Literacy: What is Mutual Fund ?
Mon, Feb 15, 2016 3:35 AM on Latest, Exclusive, Mutual Fund, Mutual Fund, Featured,
Editor's Note: ShareSansar along with Global IME Capital Ltd, Fund Manager of Global IME Samunnat Scheme-1, is bringing series of article relating to Mutual Fund Literacy.
Global IME Samunnat Scheme-1 has floated public issue of Rs 80 crore from Falgun 02, 2072.
Mutual Funds are investment strategies that allow you to pool your money together with other investors to purchase a collection of stocks, bonds, or other securities that might be difficult to recreate on your own.
Each shareholder in the mutual fund participates proportionally (based upon the number of units owned) in the gain or loss of the fund.
The Need For Mutual Funds
For the average small investor, mutual funds can be a smart and cost-effective way to invest. You don’t have to have a lot of money—mutual funds will let you buy shares with as little as NRs. 1,000 up front. Buying shares in a mutual fund is also an easy way to help diversify your investments, which is really another way of saying that”you won’t have all your eggs in one basket”. For instance, most mutual funds hold well over most of the blue chips stocks form all sectors. For someone with just a few thousand to invest, building and managing a portfolio containing that many securities could potentially be highly impractical, if not impossible.
Other, rationale behind a mutual fund is that there are large numbers of investors who lack the time and or the skills to manage their money. Hence professional fund managers, acting on behalf of the Mutual Fund, manage the investments (investor’s money) for their benefit in return for a management fee.
Mutual Fund Vs Individual Investing
Creating and managing investment portfolio is a hard work, with hundreds of investments to pick from, decision making requires ample time devotion, superior screening capabilities, broad in-depth and up to date company and market data as well as the right tools to visualize and act on that information. Basic requirement as to invest in capital markets are as follows;
- Be updated with financial data and other material information regarding the investment held
- Financial knowledge and expertise to analyze & interpret financial statements and other material information.
- Sufficient time to analyze financial statements and material information
- Financial analysis tools that is required for analysis of the data
- Ability to link a investments with the Macroeconomic outlook, sectorial outlook to determine the long term fair value
- Sufficient fund to make diversified investment
- Continuous monitoring of investment performance
- to be within the predefined strategic asset allocation or sub allocation
In most cases, individuals lack these basic requirements. A very small mistake in analysis may cause heavy loss. An individual may arrange for research agencies to support them with their investment decision but they come at a hefty cost. Mutual Fund therefore offers the best alternative to have professionally overlooked investments at a minimal cost.
For naïve investors who lack all of the above requirements but are interested to invest their earnings in capital market, mutual fund is the best alternative they can have.
Global IME Sammunati Scheme-1 to float public issue worth Rs 80 crore
