Mutual Fund Unlocked – Part II: Basics of Mutual Funds
Mutual Fund Set-up
The mutual fund is set up in the form of trusts. These trusts have trustees, sponsors and asset management companies. Trusts are established by sponsors like promoters of the company. The trust is registered with the SEBI (Securities and Exchange Board of India) as a Mutual Fund. Asset Management companies (AMCs) manage the funds by investing in the broad cross sectoral securities on behalf of unitholders. An AMC must be SEBI registered and the trustees of the fund manage the compliance of SEBI regulations.
Types of Schemes
Schemes according to maturity periods
Open-ended Funds -Open-ended funds are the funds which are open throughout the year for subscription and don’t have any specific maturity date. The key feature of this fund is liquidity. An investor can BUY or SELL the units at any time based on NAV, which is calculated periodically.
Close-ended Funds-Close-ended Funds are the funds which have a specific maturity period like 3-5 years in which the investors can’t redeem their investment. These funds are open for subscription during the specific period at the time of initial launch. These are listed on the stock exchanges.
Schemes according to investment objective
Income-oriented Schemes– These funds offer fixed income to the investors as the major part of the corpus of these schemes are invested in the fixed income yielding securities like bonds.
Growth-oriented Schemes– These funds offer growth potentialities with the investment in low risk and high yielding spectrum of equity scrips which provide high source on income by a way of dividend and capital appreciation.
Hybrid Schemes– These funds satisfy both the needs of conservative investors on safety and growth orientation. These funds invest in equities and bonds both to reduce downside risk and assure returns
High Growth Schemes– These funds are for aggressive investors as these funds invest in high risk and high return volatile securities which offers high degree of capital appreciation.
Capital Protection-oriented Scheme– These schemes protect the capital invested in funds with suitable orientation and portfolio strategies.
Tax Saving Schemes– These schemes basically offer tax rebates to investors. ELSS, pension schemes are the best examples of these funds. These funds have a specific lock-in period. These funds assure tax efficient returns over the time.
Index Funds– The portfolio of these schemes consists of only those stocks that constitute the index. So, these funds usually replicate the performance of a particular index such as the BSE Sensex or Nifty.
Sectoral Funds– These funds invest in the specific sectoral funds as mentioned in the offer document. With these funds person can invest in the sector specific scrips to reap the returns.
Real Estate Funds– These funds are the close ended funds which invest in the real estate and properties.
Hedge Funds– These funds are the funds where the investment is made with a speculative trading perspective. That is buying the shares whose prices are likely to increase or vice versa selling the shares whose prices are likely to decrease.
Money Market Mutual Funds– These funds invest in short-term debt securities in the money market. These include commercial papers, treasury bills, etc.
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