Q.6 Mutual fund schemes can be identified by investment objective, List one scheme within each category. [10]
Answer : Mutual Fund Schemes or Products
Broad range of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations and so on. The schemes are as follows:
– Open ended and close ended schemes — An open-end fund is accessible for subscription throughout the year. These are not subjected to a fixed maturity. Investors can easily buy and sell units at Net Asset Value (NAV) related prices. The key quality of open-end schemes is liquidity.
– Close ended schemes have a pre-defined maturity period. At the time of the initial issue one can invest directly in the scheme. Depending on the arrangement of the scheme there are two exit options on hand to an investor after the preliminary offer period closes. Investors can buy or sell the units of the scheme on the stock exchanges where they are listed.
– Investment objective schemes — Mutual funds are also classified based on the objectives of the fund. The investor can invest in mutual funds based on these objectives. The types of investment objective schemes are as follows:
– Pure growth schemes — Pure growth schemes are also acknowledged as equity schemes. The intention of these schemes is to offer capital approval over medium to long term. These schemes usually invest a main part of their fund in equities and are keen to bear short-term turn down in value for possible future appreciation.
– Pure income schemes — Pure income schemes are also identified as debt schemes. The target of these schemes is to supply regular and steady income to investors. These schemes normally invest in fixed income securities such as bonds. Capital appreciation in such schemes possibly will be limited.
– Taxes saving schemes — Tax-saving schemes recommend tax rebates to the investors under tax laws approved from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.
– Balanced schemes — Balanced schemes aim to give both growth and income by occasionally distributing a part of the income and capital gains they earn. These schemes put in in both shares and fixed income securities.
– Miscellaneous schemes — The miscellaneous schemes include the following:
– Sector funds — These are the funds which put in the securities of only those sectors as specified in the offer documents. Examples of such funds are pharmaceuticals, software, fast moving consumer goods, and petroleum stocks and so on. The returns in these funds are reliant on the performance of the respective sectors. These funds have the potential to give higher returns but they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors and must exit at an appropriate time.
– Money market mutual funds — Money market mutual funds aim to present easy liquidity, conservation of capital and moderate income. These schemes commonly invest in safer, short-term instruments, such as bills of treasury, commercial paper, deposit certificates, and inter-bank call money.
Mutual Funds are always a good investment option in the financial portfolio. The returns are always more in these funds when compared to risk free investment options in banks. Also the risk in these investments is much less as compared to direct investments in shares.
Mutual funds can be called as diversified methods to invest our money and they offer numerous benefits to invest our hard earned money. But, before investing we should analyse the entire document provided by the concern mutual fund company as various risks are involved. Taxes and entry fees are also a part of mutual fund investments that reduces the returns on investments. The risk of losing the principal amount invested in a mutual fund is always there as the mutual funds are not guaranteed by the government. At the same time mutual funds present several advantages which made people to start investing in them. The first advantage is affordability which facilitates any kind of investor even without a huge capital to start investing in mutual funds to gain benefits for themselves. There are quite a lot of mutual funds schemes such as monthly payments, systematic investment plans and so on that can be customised based on the individual needs of the investor. The liquidity that mutual funds offer to the investors is more when compared to others. The investor can recover possession of the mutual funds whenever they want in the form of the current NAV per unit at that time but there will be a deduction of the charges from the net amount.
