A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The ownership of the mutual fund is thus a joint or ‘mutual’. An investor’s ownership of the fund is the same proportion as the contribution made by him bears to the total amount of the fund. Mutual funds are same as other investment that’s reason before investing the investor must know investor’s own investment goals and objectives. There are certain information investor should know before investing into the mutual funds. The investor should understand the mutual funds past performance, mutual fund manager, mutual fund’s performance against the index etc. This information will not give the exact future prediction but it is the indicator to know the mutual funds performance and it returns or risk taking strategy in the future. The investor should first plan about investor’s financial planning before any investment. The investor choose a fund, establish investor’s own financial goals, decide how much risk investor can afford to take and consider the cost, services and track record of the mutual fund.
A mutual fund uses the amount to buy the assets which is specified by the investment object i.e the equity fund will buy the ordinary shares, preference shares, etc. The debt fund invests to buy the debentured, bonds, etc. When a person buys a share of any stock company, the investor becomes the owner of the same proportion of the purchase of shares to the proportion of the total shares of the mutual fund. A mutual fund constituted as a trust and the investor subscribes the units of the schemes launched by the fund. The units terms as NAV ( Net Asset Value) which reflects the market value of the mutual fund for the specific scheme.
The Mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When investors invest in a mutual fund, Investors are buying shares (or portions) of the mutual fund and become a shareholder of the fund. An investor can buy the share of the company only when the company makes share issue.
The investor an also purchase or sell the share if the company lists the shares on the stock exchange. A shareholder can sell the share to the company only when the company announces ‘share buy back’ or in other case the investor can sell the stock to the other investor the stock exchange.
An open mutual fund is different from this respect. The investor can purchase and sell the units of the mutual funds any time where stock exchange won’t come into the picture. The investors are shares the proportion to their investments with the same proportion of shares in profits or losses of the mutual funds. The mutual funds normally come out with a number of schemes with different investment objectives, which are launched from time to time. A mutual fund is requiring to be registered with Securities and Exchange Board of India (SEBI), which regulates securities markets before it can collect funds from the public.
There is certain information provided by the mutual funds for the investor to invest in mutual funds. Mutual funds provide some documents like prospectus or offer letter which mention the mutual funds objective, purpose, etc. A prospectus is important to obtain and read the fund's prospectus. A prospectus is a document given to potential investors in connection with a public offering of securities. It is a written statement of all relevant information about the company, such as its history, operations, financial conditions and key personnel. Mutual funds are required by law to provide prospectuses. Most include a description of the general nature of the fund, a summary of the financial structure and operation, description of fund assets, the management structure, salaries of officers, the expenses of the offering, specific uses of the proceeds, and current lawsuits against the issuer.
In addition to the prospectus, the fund will send investor, upon request, a statement of additional information (SAI). This "SAI" is a detailed document that explains the financial workings of the fund and provides disclosure about the backgrounds and expertise of individuals and companies involved in managing and marketing the fund. If, after investor read the prospectus, investor want more information, request a copy of the SAI. If investors still have questions, go over the proposed investment with the broker. Remember that this is a service investor pay for with investor’s sales charge, so take advantage of the fact that investor have a professional at hand who understands the investment and can explain it to investor.
The Securities Division registers mutual funds and licenses the people who sell them. Before investor invest, be sure that the fund investor has selected and the person selling investor the fund are properly registered with the Division. Although registration is no guarantee against loss, it does assure that certain minimum standards have been met.
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