Mutual Funds and Stock Analysis

The investment pattern in a mutual fund depends on investment objective. The Asset Management Company (AMC) team includes the research analysts, fund managers and dealers appointed by AMC itself. The fund manager is held responsible for all the investment decisions taken and also takes decision on the investment pattern, of the scheme based on the objectives of the scheme. Information with regard to various investment opportunities are provided by the research team and the dealers implement the decision of the fund manager. The fund manager uses both primary and secondary markets for actually investing the funds. The deals are placed through the fund’s brokers and the custodians take care of the back office operations involved in the investment decisions. The research team evaluates the features of the stocks and recommends the same to the find managers. The various types of equity research include the following: A study of the earningsContinue reading

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. The reason being the prospectus contains more information and is full of detailed information and uses complex terminology. As the minimum, an understanding of the following important aspects is necessary: Highlights of the Scheme: The main features ofContinue reading

Mutual Fund Performance Benchmarks

Benchmarks are independent portfolios and a representation of behavior of returns from the market. Benchmarks are not managed by fund managers. In simple words, a standard for evaluating the performance of mutual fund investments. To better understand the concept of benchmark it is very important to know the job of a mutual fund. For example, the S&P CNX Nifty is a portfolio of 50 securities traded on the National Stock Exchange. The BSE Sensitive index is a portfolio of 30 securities traded on Bombay Stock Exchange. The movement of these indices represents the movement in prices and returns on the stock traded in the equity market. Suppose an investor invests in an index fund -he will compare the return from index fund with the return from the equity market. If the fund manager is managing an equity portfolio, which invests only in equity but is not an index fund, investorsContinue reading

Balanced Mutual Funds

Mutual funds that invest both in debt and equity markets are called balanced mutual funds or simply balanced fund. A typical balanced fund would be almost equally invested in both the markets. The variations are equity funds that invest predominantly in equity (about 70%) and keep a smaller part of their portfolios in debt securities. These funds seek to enhance the income potential of their equity component, by bringing in debt. Similarly, there are predominantly debt funds (over 70% in debt securities) which invest in equity, to provide some growth potential to their funds. A balanced fund also tends to provide investors exposure to both equity and debt markets in one product. Therefore, the benefits of investment diversification get further enhanced as equity and debt markets have different risk and return profiles.

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). These funds named variously in mutual fund industry are equity funds formed under a special scheme notified by the Government of India in 1990. According to the provisions of this notification, investment in a specially formed mutual fund product that invests at least 90% of its fundsContinue reading

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. In practical terms these are just estimates. For example, the investment manager’s fees has to be accrued everyday for computing NAV but the fee isContinue reading