Mutual Fund And ETF

An investment vehicle which is comprised of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market securities and similar assets. Mutual funds are operated by money mangers, who invest the funds capital and attempt to produce capital gains and income for the funds investors. A mutual funds portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Whatever the reason to Invest mutual funds, one thing is clear, you must understand the pros of mutual funds, the cons of mutual funds, and how to avoid the pitfalls.

How to Invest in Mutual Funds

Looking for a mutual fund to invest in, but not sure how to choose the the right one for you? Check out this handy guide to get yourself started.

If youre too busy to pick your own stocks but still want to get into the investment game, buy a mutual fund. Think of a mutual fund as a giant investment club with a few million members who have all hired a fund manager and a staff to pick and choose when to buy and sell their stocks.

Heres the challenge. There are more than 9,000 mutual funds out there. So, unless youre a professional analyst, you probably dont have the time, knowledge or know-how to look at more than four or five before you get totally confused and turned off. The 10 mutual fund families to the right have been around for several decades and have excellent track records for management and profitability. Each of them is a no-load fund, which means no sales charge or commission is taken out of your investment in mutual fund. Most brokers and financial planners will not suggest these fund families for that reason.

Portfolio of securities professionally managed by the sponsoring management company or Investment Company that issues shares to investors. A no-load fund does not charge a sales commission to buy shares, whereas a load fund does charge one. Mutual funds also charge management fees. The major advantages of mutual funds are diversification, professional management, and ownership of a variety of securities with a minimal capital investment. Further, dividend reinvestment and check-writing options may exist. Mutual funds are also convenient because recordkeeping is done by the fund. There are several drawbacks, however. Mutual funds may be costly to acquire because of sizable commissions and professional management fees. Traditionally, mutual fund performance on average has not outperformed the market as a whole. Quotations for mutual funds are stated in dollars and cents. The sale price is known as the NAV or net asset value. An illustrative quote for XYZ Stock Growth Fund follows:

The quotation tells us that a share in the fund on a particular day could be sold for $11.22-the NAV. On the same date, a share could be bought for $12.26. The difference between the sale price and the purchase price is due to the commission charged on the purchase transaction. The NAV change value of + .02 indicates that the sale price (NAV) increased by 2 cents a share from the preceding day.

Banks’ exposure to mutual funds (MFs) fell around Rs 11,000 crore in the fortnight ended February 26, as lenders strove to meet year-end disbursal targets, aided by a rise in demand for credit.

According to the Reserve Bank of India (RBI) data, banks’ MF investments stood at Rs 1,09,453 crore at the end of February 26. Banks have maintained over Rs 1 lakh crore in MFs in the current quarter.

This is despite RBI expressing concerns about banks’ high exposure to MFs. RBI has asked banks to set limits for MF investments. On Friday, the government said RBI was reviewing the steps taken by banks to cut exposure to debt schemes of MFs. “At present, RBI is reviewing the measures initiated by banks in this regard and analysing movement of funds between banks and MFs,” Minister of State for Finance Namo Narain Meena said in the Lok Sabha. He said most banks had placed board approval limits on exposure to MFs.

Banks’ MF investments have risen significantly in the last few years. These are classified as capital market exposure and so cannot exceed 40 per cent of a bank’s net worth. Assets managed by MFs stood at Rs 767,000 crore at the end of February 28, of which debt schemes accounted for two-thirds. Banks account for a sizeable chunk of this figure. Banks park the surplus left after meeting the demand for credit in mutual funds, the call money market and RBI’s reverse repo window.

RBI Governor D Subbarao had advised banks against investing heavily in MFs during the half-yearly review of the monetary policy. Banks typically withdraw funds from MFs at the end of every quarter to meet capital adequacy requirements. MF investments carry a high risk weight of 150 per cent.

(BS)

The PowerShares India Portfolio (Fund) is based on the Indus India Index (Index). The Fund will normally invest at least 90% of its total assets in securities that comprise the Index and ADRs based on the securities in the Index. The Index is designed to replicate the Indian equity markets as a whole, through a group of 50 Indian stocks selected from a universe of the largest companies listed on two major Indian exchanges. The India Index has 50 constituents, spread among the following sectors: Information Technology, Health Services, Financial Services, Heavy Industry, Consumer Products and Other. The India Index is supervised by an index committee, comprised of representatives of the Index Provider and members of academia specializing in emerging markets.