Debt mutual funds are those that predominantly invest in debt securities. Since most debt securities pay periodic interest to investors, these funds are also known as income funds. However, it must be remembered that funds investing in debt products can also offer a growth option to their investors. What is more important is that the portfolio is predominantly made up of debt securities. The universe of debt securities comprises of long-term instruments such as bonds issued by central and state governments, public sector organizations, public financial institutions and private sector companies; and short-term instruments such as call money lending, commercial papers and certificates of deposits and treasury bills.… Read the rest
Mutual Fund Investments
Mutual Fund NAV Calculation
The net asset value is the market value of the assets of the scheme deducting its liabilities. Simply put, the NAV is what investors are required to pay to buy or sell one share of the mutual fund. Keep in mind any additional fees are not included in this amount. In accounting terms, NAV is also known as the book value of the mutual fund.
The net asset value per mutual fund unit on any business day is computed as follows:
NAV = (Market value of the fund’s investments + Receivables + Accrued income -Liabilities -Accrued expenses)/Number of units outstanding
Rules Governing the Mutual Fund NAV Calculation- Accrued Income and Expenses: The correct accrual of all incomes and expenses is a requirement for computing NAV.
Mutual Fund Prospectus
A mutual fund prospectus is an offer document issued at the time of new issue of mutual funds, as an invitation to the public to subscribe to the units of a particular scheme. It contains the key information about the terms, conditions and the features of the mutual fund schemes and the application form. All mutual funds are required to give information about their schemes as per the format of the offer document prescribed by SEBI. Everyone agrees that the prospectus is the single best source of information about a mutual fund, yet as many of mutual fund investors do not use this critical document when investing their savings and retirement assets.… Read the rest
Mutual Fund Evaluation
The data for evaluating mutual fund can be found in its prospectus, quarterly and annual reports. The following financial parameters should be used in analyzing a mutual fund and its management:
1. Total Return
Total Return indicates the impact of appreciation of its value and dividends (if any). It is becoming increasingly common to find total-return numbers published in newspapers, magazines or other sources. One can calculate total return using the following formula:
Total Return (TR) = [(Distributions + Change in NAV)/NAV at the beginning of the period] x 100
Distribution is the income received by the investors for having their money in the mutual fund.… Read the rest
Types of Equity Mutual Funds
Equity mutual funds or simply equity funds are those that invest predominantly in equity share of companies. There are a variety of ways in which an equity portfolio can be created for investors. The following are the different kinds of equity funds:
1. Simple Equity Funds
These funds invest a predominant portion of the funds mobilized in equity and equity related products. In most cases about 80-90% of their investments are in equity shares. These funds have the freedom to invest both in primary and secondary markets for equity. One variation of the simple equity fund is the ELSS (Equity Linked Savings Scheme).… Read the rest
Mutual Fund Ownership Documents
In terms of practice that has evolved in the mutual funds industry, mutual funds have stopped issuing certificates to investors, in their open-ended schemes. Investors instead get an account statement, which shows their holdings and the price at which they were bought. Mutual fund holdings of an investor are identified by the account number. Investors can, if they wish, consolidate their holdings in a mutual fund across various schemes and receive a consolidated account statement. The account statement is computer generated and has no signature. It is also not an instrument that can be traded or transferred. It is a very safe way of holding mutual fund units.… Read the rest