Sharetipsinfo -> Tutorials of Mutual fund and Indian stock market
is a Mutual Fund?
|A mutual fund is a pool of money put together by a group
of investors, who stand to benefit or loose from that pool
to the extent they have invested.
This pool is created
since small individual investments have limited power
and ability to influence the outcome of the investment.
On the other hand, when the investment is large, the investor
can have greater control on the outcome of the investment.
Thus, many small investors gather their individual small
investments into a larger investment to take advantage
of the opportunities offered by large investments. This
is called a mutual fund.
does the Mutual fund invest in?
|Mutual funds can be created for investing in anything.
The investments that the mutual fund is going to make are
discussed in the mutual fund's offer document.
mutual funds invest in investment opportunities that have
a trading market around it, such as stocks and shares,
bonds and debentures, etc.
does the investors benefit?
|The most important factors in choosing who to have a deposit
with, is the safety of the deposit, and the rate of interest
that is paid on the deposit.
does a Mutual funds works?
|A mutual fund is managed by an Asset Management
Company (AMC). Professional investors, who study where and
when to make investments staff the AMC. The AMC creates
a mutual fund, and invites the public to subscribe in the
mutual fund with their investment. The funds collected are
then invested by the AMC and are continually managed.
other investments, the mutual fund itself is not traded
nor does it offer guaranteed returns like a deposit. The
mutual fund's Net Asset Value (NAV) determines the value
of the investment. Investors redeem their investments
in the mutual fund on the basis of the NAV from the mutual
Equally, when investors want to buy, they buy into the
mutual fund on the basis of the NAV.
The investments are managed by professionals who know
more about deciding what to buy and sell and when to buy
The risks and rewards of investments are spread across
a large number of individuals, so losses are minimized
Access to funds is quick, since there is no need to sell
or buy from the market
is Net Asset value?
|The Net Asset Value of a mutual fund is the total market
value of the holdings of the mutual fund less its liabilities,
such as expenses, management fees, etc. This is calculated
on a daily basis.
What this means is, if the mutual fund
were to be dissolved or liquidated, by selling off all
the assets in the fund, on that specified date, the Net
Asset Value is what all the holders of the mutual fund
will collectively own and will be given this amount in
proportion to their holdings.
You can estimate your share of the holding of the mutual
fund by the Net Asset Value per unit. This is the value
represented by the ownership of one unit in the fund.
It is calculated simply by dividing the Net Asset Value
of the fund by the number of units.
Commonly Net Asset Value is always referred by its unit
value rather than by the total Net Asset Value of the
is Net Asset value calculated?
|Net Asset Value is calculated as follows:
Value = (Market value of shares/debentures + Liquid assets/cash
held, if any + Dividends/interest accrued) - (Amount due
on unpaid assets + Expenses incurred but not paid + Management
and other fees)
This is how the above are calculated
Valuation of marketable shares/debentures: The last or
closing market price on the principal exchange where the
security is traded
Valuation of illiquid and unlisted and/or thinly traded
shares/debentures: For shares, this could be the book
value per share or an estimated market price based on
performance of other shares in the industry. For debentures
and bonds, value is estimated on the basis of yields of
comparable liquid securities after adjusting for illiquidity
Accrued dividends/interest: Companies announce dividends,
however, pay it at a later date. If a dividend is announced,
then the announced dividend is taken as the accrued dividend.
Similarly, interest is payable on debentures/bonds in
a pre determined frequency at a pre determined rate. Therefore
for every passing day, interest is said to be accrued,
at the daily interest rate, which is calculated by dividing
the periodic interest payment with the number of days
in each period. Thus, accrued interest on a particular
day is equal to the daily interest rate multiplied by
the number of days since the last interest payment date.
Expenses including management fees, custody charges etc.
are calculated on a daily basis. The management fees is
as per the declaration in the offer document of the mutual
|Click here for Stock
Click here for Indian stock market tips