Mutual Fund(LearnHub)
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ICICIdirect LearnHub

Community User Posted on 11:44am 21-Dec-2019

What is the concept of mutual fund and how does it work?

Mutual fund is an investment vehicle which collects the money from various investors, give it to the professional fund manager and fund manager invests as per the predefined objective in different asset classes. Return generated from the investment is distributed among the investors in the proportion of their investment amount after deducting the fund management and other expenses.

Mutual fund is the easiest and common method used by investors to manage their fund in a professional manner by paying the fee in the form of expenses. This is similar to take the services of a specialized doctor by paying the consultation fee to manage the health.

 

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What are the advantages of mutual fund investment?

ICICIdirect LearnHub

Community User Posted on 11:44am 21-Dec-2019

What are the advantages of mutual fund investment?

Mutual fund has numerous advantages, some of them are listed below:


1. Professionally managed
2. Invest with small amount of Rs. 500
3. Helps in portfolio diversification
4. Highly liquid, get your money quickly without any hassle
5. Low fund management expenses
6. Ease of purchase and redemption
7. Transparency & easy access to track fund value
8. Variety of Products to invest as per client’s need and goal
9. Low risk compare to the direct investments in securities
10. Regulated by SEBI
11. Tax saving benefits
12. Flexibility to switch from one fund to another fund
13. Multiple investment option – Lumpsum or installments (SIP)

 

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What is the concept of mutual fund and how does it work?

Who is the regulator for mutual funds in India? Is it safe to invest in mutual funds?

ICICIdirect LearnHub

Community User Posted on 11:45am 21-Dec-2019

Who is the regulator for mutual funds in India? Is it safe to invest in mutual funds?

In India, mutual funds are regulated by SEBI and it is fully safe to invest in mutual funds. There are strict guidelines by the regulator for the Asset Management Companies (AMC), who are managing the fund. There is full transparency related to the fund value, expenses and utilization of the fund as per the objective. Investors can assess the portfolio details, fund value, investment and redemption facilities and other related services regularly through online or through the wide network of AMC and registrar's offices. 

As of Aug 2019, total Asset Under Management (AUM) in mutual fund in India is more than 25 lacs crore. This shows the confidence of the investors and the size of the industry.

 

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What are the advantages of mutual fund investment?

How is investment in mutual funds different from direct investment in financial instruments like shares, bonds, etc.?

ICICIdirect LearnHub

Community User Posted on 11:46am 21-Dec-2019

How is investment in mutual funds different from direct investment in financial instruments like shares, bonds, etc.?

Mutual fund investing is quite simple and easy in comparison to investing in securities directly. Direct equity investment could be rewarding for those who have good knowledge about the markets and can devote time in choosing and monitoring the securities. If you don’t have the knowledge or time to manage your investment, you can choose the mutual fund where your fund will be managed by a professional fund manager. Mutual funds will purchase the securities as per the predefined objective and continuously monitored and reviewed by the fund manager.

Following are the major differences between direct stock investment and mutual fund investment.

 

Feature

Direct Stock

Mutual Fund

Control on stock selection

Yes

No, done by fund manager

Buy and sell of individual stock

Yes

No, done by fund manager

Portfolio Creation

Yes

No, done by fund manager

Tax Saving

No

Yes, Possible through selected funds

Review and monitoring of individual stock required

Yes

No, will take care by fund manager

Specialized knowledge of the market is required

Yes

No, the fund manager will manage all activities

 

Related Question >>

Who is the regulator for mutual funds in India? Is it safe to invest in mutual funds?

What is the legal structure of mutual funds in India?

ICICIdirect LearnHub

Community User Posted on 11:46am 21-Dec-2019

What is the legal structure of mutual funds in India?

Mutual fund structure consist of five important entities:


1. Sponsor - Sponsor is the principal body, who brings the capital as per the guideline issued by SEBI to start a mutual fund. For example, in ICICI Prudential mutual fund, ICICI Bank and Prudential Plc. are the sponsors.
 

2. Trust & Trustee - Trust is created by sponsor and trustees are appointed to manage the operations of a trust. The trustees' job is to ensure that all the funds are managed as per the defined objective and investors' interest is protected.
 

3. Asset Management Company (AMC) - Trustee appoints AMC to manage the funds of the investors and, in return, get the fee to manage the fund.
 

4. Custodian - Custodian job is to the safekeeping of the investors' fund and securities and to ensure that it would be used for intended purpose only.
 

5. Registrar and Transfer Agent (RTA) - RTAs job is to manage the backend operation of the mutual fund and managing investors' transaction request requests and other related services.

 

Related Question >>

How is investment in mutual funds different from direct investment in financial instruments like shares, bonds, etc.?

What is the role of registrar & transfer agent for mutual fund investment?