Disadvantages of Mutual funds

Dilution:   Even though diversification reduces investment risk it dilutes returns. A mutual fund is a portfolio of number of assets. So the returns of a fund are the average return of securities in the portfolio.

Management Fees: Some part of our investment (usually 1% to 2% annually) goes towards the management fees.  Apart from this there are sales commissions and redemption fees.

Note:  As per the recent SEBI directive entry load is waived off even if our buy order goes through a dealer/broker.

No Guaranteed Returns:  Returns from mutual fund investments are not guaranteed though they are managed by professionals. Most of the mutual funds don’t beat their benchmarks.

No Control Over Decisions:  We don’t have any control over the investment decisions. The manager takes all decisions on securities buying and selling. Read more

June 27, 2009 | Filed Under Mutual Funds | Leave a Comment 

Advantages of Mutual Funds

Diversification:  Mutual funds help reduce overall investment risk. A mutual fund invests in different companies and across different asset classes like equity shares, bonds, futures etc. So even when a share price of a company goes down it would be compensated by the price raise in the other company. 

High Liquidity: It’s fairly easy to buy a mutual fund unit and sell it. In case of closed ended funds the shares need to be sold on an exchange similar to equity shares whereas open ended mutual fund units need to be sold back to the mutual fund company. In both the types of mutual funds you can sell your units as and when required and with a slight difference (or at same price) of market price.

Minimum Investment requirement: All most all mutual funds are accessible to retail and common investors. The minimum investment is usually Rs 500, which is affordable by any investor. Read more

June 27, 2009 | Filed Under Mutual Funds | Leave a Comment 

History of Mutual Funds

The first mutual fund was started in the Netherlands in 1774.  Then mutual funds spread across Scotland, the U.K and France before entering the U.S.  These early mutual funds are called Investment Trusts. The first American mutual fund was New York stock trust, established in 1889. Then most of the mutual funds were started in Boston in the early 1920’s, including the State Street Fund, Massachusetts Investor’s Trust (MFS), Fidelity, Pioneer, and the Putnam Fund.

In 1960s there were hundreds of aggressive mutual funds with high risk were started. In 1970s there started ‘no load funds’ with zero sales commission. There was a tremendous growth in this industry in 1980s and 1990s especially after the World War II. Read more

June 22, 2009 | Filed Under Mutual Funds | Leave a Comment 

What is a Mutual Fund?

A mutual fund is an investment company which collects money from public by issuing its units, use the collected money to invest in securities, and pass the profit earned back to the investors.

The units of a mutual fund are similar to the shares of a company. Its value goes up when the underlying securities’ value is increased. The underlying securities could be equity shares, bonds, money market instruments, or future contracts etc or a combination of these financial instruments. 

The main objectives of mutual funds are

To provide an opportunity to common public to invest in diversified portfolios with small capital base.
To cater to the needs of different kinds of people to provide growth opportunity, safety, reduced risk and high liquidity. Read more

June 22, 2009 | Filed Under Mutual Funds | Leave a Comment 

Financial Ratios – Dividend Policy Ratios

These ratios give an insight into the dividend policy of a company.

Dividend Yield   =  Dividend per share / market value of the share

This ratio doesn’t show the future growth.

Payout ratio = Dividend per Share / Earnings per share

Price Earnings ratio (P/E ratio):

This ratio comes under valuation ratios as this is useful in assessing the value of a share.

Price earnings ratio = Market value of a share / Earnings per share Read more

May 31, 2009 | Filed Under Fundamental Analysis | Leave a Comment 

Next Page →

Add to Technorati Favorites