| Introduction: | | | | gained." |
| Investment may be defined as the application of | | | | Normally, these tax savings funds are operated |
| money or money's worth in a process that | | | | under the auspices of some Governmental regime |
| begets more money. In other words, the | | | | of tax concessions. That is, by investing in this |
| multiplication in the amount of money, as a result | | | | type of fund, the investor is relieved of his tax |
| of channeling the same through a process that | | | | liability to a certain extent. Investors whose main |
| adds incremental value to the original amount. | | | | concern is to reduce their tax liability would find |
| Many are the ways in which wealth may be | | | | this fund attractive. |
| created and multiplied. There are innumerable | | | | Benefits of Mutual Funds: |
| avenues for investment, each with a distinct | | | | Two heads are better than one! What happens in |
| purpose, and corresponding end result.One may | | | | a MF is that several heads come together and |
| invest in gold, or other precious metals like silver, | | | | exercise their minds for mutual benefit. Some of |
| platinum etc. One may invest in commodities like | | | | the benefits accruing to members of a MF are: |
| wheat, soy, corn, etc.One may invest in stocks of | | | | Benefits of Capital: |
| companies. Or one may invest in Mutual Funds | | | | Supposing there are 100 investors that want to |
| (MF). | | | | invest USD: 1000.00 each in a particular activity. If |
| Definition of Mutual Fund (MF): | | | | they were to invest individually, each one would |
| What is a MF? A Mutual Fund is a joint effort at | | | | do so up to his own limit, and they would each |
| Wealth Creation. Practically, a group of people | | | | benefit to the limited extent of their |
| come together and invest in particular security | | | | investment.On the other hand, if these 100 |
| securities for common good. This group of people | | | | investors came together and pooled their |
| are banded together institutionally in the form of a | | | | investments and invested as one entity, then their |
| fund, or an agency that takes care of their | | | | investment of USD: 100,000.00 would fetch each |
| investment issues. | | | | of them, benefits of a USD: 100,000.00 |
| It is only logical then, that when a diverse group | | | | investment, instead of a USD: 1000.00 one. |
| of people with different educational, cultural, | | | | In the same way, a MF makes it possible for its |
| economic and other backgrounds come together, | | | | members to invest in stocks and securities that |
| there must be a common set of rules, customs, | | | | would be out of their reach as individual investors. |
| and practices to bring about harmony in their | | | | Large scale investments are brought within the |
| functioning, in order to achieve their common goal. | | | | reach of the small investors by breaking up the |
| The legal constitution of a Mutual Fund (MF) | | | | large investment into smaller parts or share. |
| depends on the laws prevailing in the country of | | | | Benefits of Expertise: |
| its establishment. For instance, in the United | | | | A lay investor may have an idea of investing, and |
| States, MFs enjoy a special legal status. In India, | | | | what to do with his money. However, to |
| they may be set up as Asset Management | | | | maximize one's returns and to enjoy the benefits |
| Companies, with Trustees running the day to day | | | | of investing to the full, one needs to have a |
| business. These Trustees are competent people | | | | professional knowledge of the various vehicles of |
| that have a thorough knowledge and | | | | investment, and also a thorough understanding of |
| understanding of the markets, and have | | | | the market and how it functions. |
| specialized knowledge in their particular subject. | | | | This is where the expertise available with a MF |
| What MFs Do: | | | | comes to the fore. MFs are managed by |
| MFs are engaged in the business of collecting | | | | professionals who know their job. By investing in a |
| funds from the members and investing them in | | | | MF the investor is capitalizing on the expertise of |
| various stocks, securities, bonds, etc for the | | | | the Fund Manager, and reaping the benefits of his |
| benefit of its members. Different strategies are | | | | investment. |
| followed by the MFs depending on their philosophy | | | | Benefits of Diversification: |
| of investment, and the channels of investment | | | | An investor, in his individual capacity, may not be |
| available to them officially. | | | | in a position to invest in a bunch of diverse |
| Types of Funds: | | | | sectors, on account of his limited resources. |
| There are basically two types of funds, namely, | | | | However, by investing in a MF, he derives the |
| growth funds, and income funds. Apart from | | | | benefit of investing in a cross section of activities |
| these there is also the Tax Saving Fund. | | | | and industries. By doing that, the investor, on the |
| Income Fund: | | | | one hand, benefits from the upswing in any |
| A fund whose aim is to ensure a regular income | | | | sector in the MF portfolio, and on the other hand, |
| to its members during the currency of the | | | | is not adversely affected to a large extent, on |
| scheme. Accordingly, the MF chooses the type of | | | | account of the spread of his funds in a variety of |
| companies to invest in, resulting in regular inflows | | | | sectors. |
| of returns that are distributed among the | | | | Other Benefits: |
| members as per terms of the MF.People who | | | | Some of the other benefits of participating in a |
| require a regular income and are in a position to | | | | MF are tax breaks available in certain funds. Apart |
| make the required investment would find this | | | | from that, a MF offers liquidity, in that, subject to |
| type of MF beneficial. | | | | certain restrictions, a MF member may encash his |
| Growth Funds: | | | | share of investment, in case of need. Further, the |
| As the name indicates, the emphasis of the MF | | | | investor need not liquidate his entire holding, but |
| here is growth. In order to achieve this objective, | | | | sell only marketable lots, as specified, and retain |
| the MF invests in companies that are likely to | | | | the rest of his portfolio.The investor thus enjoys |
| register fast growth over a relatively short period | | | | the benefits of holding a diverse portfolio without |
| of time. As a consequence, the risk factor | | | | actually investing in each sector individually. |
| associated with this fund is also high.Investors | | | | Conclusion: |
| who are not risk-averse and are willing to wait for | | | | MFs, as vehicles of investment, have proved |
| a decent appreciation of their investments, | | | | themselves to be versatile, catering to the small |
| without requiring a regular income, may choose to | | | | and the big investor alike. They do not require the |
| invest in this type of fund. | | | | investor to be investment-savvy to take |
| Tax Savings Fund: | | | | advantage of them. In fact, they are meant for |
| Apart from the two types of funds discussed | | | | people who, either do not have in depth |
| above, there is another type of fund offered by | | | | knowledge of the markets, or those that cannot |
| a MF with benefits in the form of tax savings, | | | | spend the necessary time and effort to do |
| rather than income and growth. The rationale | | | | extensive research, before investing. |
| behind such a fund is "A Dollar saved is a Dollar | | | | |