Mutual Funds can any one help me with basic idea?

Question

what in simple lay man terms do these mean the following equity funds , debit - income fund and debit - gilt / liquid . and whats NAV figure's mean .what would be best scheme to start with in SIP

Answer 1

1. Equity fund. This is a scheme that invests only in equity. When investing in stocks, you cannot be sure of your investment tenure or returns. As a thumb-rule, the longer a stock is held, the higher the gains. You stand a better chance of a substantial appreciation if you invest in stock-based funds.
Stocks are categorised by their market capitalisation into small, medium or large, and MFs are accordingly classified as large-cap, mid-cap or small-cap funds. The NAV of an equity scheme will fluctuate with the stock market.

2. Debt fund. . This fund invests in fixed income instruments such as debentures (bonds) and various money market instruments. Here, both returns and investment tenure are stated at the time of investing. Bonds can be issued by companies or by the government (state or central). Bonds are rated by independent credit rating agencies such as Crisil/CARE/ ICRA, which verify the company’s ability to honor its interest commitments. The NAV of a debt fund does not fluctuate as much as that of an equity fund.

Income Fund. Income Fund invest in non-convertible debentures, fixed deposits, bonds, government securities, floating rate debt, etc. Most of the securities invested in are rated.
The average maturity period of securities invested in by income funds can be as high as 7-8 years.
Suitable for investors who want to remain in debt for a fairly long period. This helps the investor reduce the interest rate risk since he/she is unaffected by the short-term volatility in interest rate.

Gilt fund. Gilts are securities issued by the central government and are said to carry sovereign or minimal risk.
NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes

Income Fund. . Income Fund invest in non-convertible debentures, fixed deposits, bonds, government securities, floating rate debt, etc. Most of the securities invested in are rated.
The average maturity period of securities invested in by income funds can be as high as 7-8 years.
Suitable for investors who want to remain in debt for a fairly long period. This helps the investor reduce the interest rate risk since he/she is unaffected by the short-term volatility in interest rate.

Net asset value. The NAV represents the value of a unit in the scheme. It is calculated as under:
total assets - all expenses / outstanding units
Buying and selling into funds is done on the basis of NAV-related prices. The NAVs of most open-ended funds are declared every working day. When the value of a fund’s investments increases, the investor’s units generally increase in value. This value is calculated at the end of each working day and can move in either direction.

Answer 2

debit-income funds normally are more long term, because most mutual funds are front loaded (meaning they take a percentage normally 3-6% at the beginning of the investment, you must keep the investment for many years to make it worth your while) a debit/gilt fund can allow you sell more quickly without taking such a big hit, these can have a smaller front load but probably has a back end load as well. Rememeber almost all mutual funds have expense ratios as well. This is the annual percentage taken by the fund managers. This statistic MUST be under 1% to be affective for your portfolio, do some research. Also NAV means Net Asset Value. Normally an investment with a NAV over 100,000 dollars waves the front load expense. So if you plan on investing 85 k in mutual funds, might as well wait until lyou get 100k to invest and cancel the loads. this will save you about 5k of your investment. Im not sure if your doing your own personal investments or workiing with an advisor, but many advisors will stick you in a mutual fund and not have to do anything for years and still make 1% himself off you as well as the fund managers. Mutual Funds have pros and cons, the expenses being the cons, the consistancy being to pros, they are normally profitable over a long period of time. Hope this helps.

Answer 3

Since the other two answers have done a great job, I will give you the funds to begin.

Assuming you are young and have some funds to do a SIP (Rs 10K to $50K per month), then you would want to do the following:

33% in Magnun Contra
33% in Rel Growth
33% in Sundaram Midcap

I put % so that if your SIP amts are different, you can just adjust with %.

Good Luck.

KKP

ps: I am doing it, and have been pretty happy. Remember every month if you look at funds, it will give you a different top 3. It is almost like picking the BEST Vacation Spot. When you pick it, it may be Hawaii. 6 months later it is Cancun, Mexico. 1 year later it is Alaska. Just have faith and stay one one course. It is the Turtle approach when it comes to SIP.

Answer 4

Mutual funds will use fancy terms like 'growth' and 'income' to lure you into buying into the fund. 'Growth' funds usually will have stocks with very high p/e ratios in anticipation of future growth. However, most of the time this growth does not manifest itself and financial carnage ensues (latest example the internet stock boom). 'Income' funds will be composed of stocks that pay high dividend yields. Stay away from open funds.

There are several chapters in the book, "The Intelligent Investor" by Ben Graham that discuss mutual funds and index funds. Graham emphasizes that you should stay away from open funds, where the money manager will be motivated to keep expanding the fund to increase the amount of commissions he/she can collect. In a closed fund, the money manager cannot bring in any new money, and thus will be more motivated to do his or her job of finding a list of diversified value stocks.