What is a Sector Fund

Sector funds are specialized funds which invest only in specific sectors for eg: Energy, Pharmaceutical, Natural Resources etc. They are risky as they are concentrated and offer little diversification.

Usually these funds target emerging sectors which have great growth potential. You see new sector specific funds coming up in the market whenever peers in an emerging sector shows good growth rate and that sector is supposed to have potential growth. They have specific sector indices as their benchmarks like BSE REALTY, BSE BANKEX etc. These funds may earn either great profits or losses. These are not suitable for investors with low risk appetite.

A few example of Sector funds are Read more

November 8, 2009 | Filed Under Mutual Funds | Leave a Comment

Bond Funds or Debt Funds

Bond Funds invest in debt instruments issued by governments, Corporates and other financial institutions. The main objective of bond funds is to have low risk exposure and get steady income.

The risks associated with bond funds are interest rate fluctuations, fiscal and monetary policies of the Government. Debt instruments are a better source of predictable return. In this case too, the investment in different bonds can be tailored to suit different investment objectives.

In a bond fund’s fact sheet an investor should carefully look at ‘Credit Rating breakdown’ i.e. the percentages of investment of the fund across bonds of companies of different credit ratings. If this breakdown is not available you can take a look at the holdings of the debt fund and get the credit rating of the issuer of the bond from a credit rating agency website. Read more

September 6, 2009 | Filed Under Mutual Funds | Leave a Comment

Equity Funds – Equity Mutual funds

Equity funds basically invest in equity shares of companies. They can invest either through IPO or through secondary market route. They can also invest in unlisted companies i.e. Private Equity subjected to a cap and rules by SEBI. Funds buy stakes in unlisted companies usually at very low prices to maximize their returns whenever these companies go public (If the IPO is a success share price on listing day goes high thereby the fund companies which have shares in the company get benefited).

Equity funds are generally considered the riskiest among mutual funds by virtue of the risks associated with equity. Within equity funds investment can be done to suit different risk appetites, investment objectives and strategies adopted by the fund.

Investors of these funds need to know the different risks associated with equity funds. Some fund management companies provide the market cap data of the fund’s investments. This gives an idea on the risk taken by the fund manager. Market cap data of a fund is the percentage of investment by the fund across different market capitalization companies. Read more

September 6, 2009 | Filed Under Mutual Funds | Leave a Comment

Closed Ended Funds

In close-ended funds, the number of units issued is fixed. After the initial issue/ IPO, the units are traded on the exchange like any other stock. Investors can buy into these funds in the IPO after which such schemes do not issue new units except in case of bonus issue.

Unlike open ended funds the buy/sell transactions happen between the investors after the initial issue. Close-ended schemes have fixed maturity periods. The market price of the units varies due to demand and supply factors, investors’ expectations and other market factors as well as the changing values of the securities in the fund’s holdings.

Share/unit price may not be equal to the NAV since the price also depends on the demand and supply. Sometimes market price of a unit goes below NAV simply because of lack of liquidity. Read more

August 29, 2009 | Filed Under Mutual Funds | Leave a Comment

Open Ended Mutual Funds

In open ended funds the units are sold continuously during the life of a scheme. Similarly the unit holders are free to redeem their units at prevailing NAV at any time. Hence number of units/unit holders fluctuates everyday.

Units in the open-ended schemes do not have a fixed maturity period. These schemes have variable capitalization. These funds are not listed on the exchange and investors need to directly approach the company or their agents/dealers for any transaction. An open-ended fund allows an investor to enter the fund at any time, or to invest at regular intervals. The issuing company directly takes the responsibility of providing liquidity to the investors when they want to liquidate their investments. Read more

August 29, 2009 | Filed Under Mutual Funds | Leave a Comment