Investment in mutual funds
Investment funds, or mutual funds, are based on a simple principle: pool the money belonging to many investors - unitholders - and invest it in a varied range of securities.
The money you put in a mutual fund is pooled with that of other investors, and these investments are managed by specialists who buy stocks, bonds, or other assets for the fund.
The portfolio of a mutual fund contains the investments chosen by the fund manager, which are held in trust on behalf of investors.
Each fund has an established investment objective that determines its general management and the types of investments that may be held there. By investing in a mutual fund, you buy units of the fund, each of which represents part of its value.
A diverse range of mutual funds is available to investors, including money market funds, fixed-income funds, balanced funds, and equity funds.
Your advisor will help you fill out the required forms and ensure the transfer of your money. Shortly after making your investment, you will receive a statement confirming your account information. It is possible to periodically review your portfolio to check your strategy and your progress in achieving your objectives.
With our professional investment services, we will help you by providing specialized management of different investment portfolios, made up of different securities such as: stocks, corporate and public bonds, international securities, other investment funds, etc.
We, at RKFS, provide support for operations-related services and monitors the implementation of compliance measures for mutual funds.
We ensure that our advisors align with securities and regulatory requirements and that they have access to the products that will meet your investment needs. Whatever your goals, we have a wide range of investment options available to you.
We provide wealthy investor clients with investment management services that free them from day-to-day wealth management decisions.
Types of mutual funds
Mutual funds are rapidly becoming an ideal choice for many investors looking for stable and consistent returns. However, if we dig deep, we get to see that there are quite a lot of types in mutual funds. They are:
- Equity Funds: These are funds that invest in equity stocks/shares of companies. These are considered high-risk funds but also tend to provide high returns. Equity funds can include specialty funds like infrastructure, fast moving consumer goods and banking to name a few.
- Debt Funds: These are funds that invest in debt instruments e.g. company debentures, government bonds and other fixed income assets. They are considered safe investments and provide fixed returns. These funds do not deduct tax at source so if the earning from the investment is more than Rs. 10,000 then the investor is liable to pay the tax on it himself.
- Fixed income funds: These funds buy investments that pay a fixed rate of return like government bonds, investment-grade corporate bonds and high-yield corporate bonds. They aim to have money coming into the fund on a regular basis, mostly through interest that the fund earns. High-yield corporate bond funds are generally riskier than funds that hold government and investment-grade bonds.
- Liquid funds: Under these schemes, money is invested primarily in short-term or very short-term instruments e.g. T-Bills, CPs etc. with the purpose of providing liquidity. They are considered to be low on risk with moderate returns and are ideal for investors with short-term investment timelines.
- Pension Funds: Pension funds are mutual funds that are invested in with a really long term goal in mind. They are primarily meant to provide regular returns around the time that the investor is ready to retire. The investments in such a fund may be split between equities and debt markets where equities act as the risky part of the investment providing higher return and debt markets balance the risk and provide lower but steady returns. The returns from these funds can be taken in lump sums, as a pension or a combination of the two.
With so many different types of mutual funds available in the market, picking one that suits specific investment needs the most is not an easy task. The simplest advice that can be given in that regard is to first understand your own needs. The next step would be to figure out what your goal is.
Investing in a mutual fund is a fast, safe and simple way to become an investor, which minimizes risk and maximizes the profitability of our money, by investing it in a diversified portfolio of different financial instruments.
Closed-end mutual funds. In this type of fund, a limited amount of equity is issued (shares, participation certificates or quotas). This issue is placed on the market and once it is sold in its entirety, the fund is closed.
Open-end mutual funds. In these funds there is no issue limit; there is also no term for the placement limit. The difference with the closed fund is that the capital of the open fund varies from day to day, depending on the operations it carries out with its investors.
Equity mutual funds. They represent the largest family of mutual funds. Such mutual funds are chosen for long-term investments and withdrawing relatively decent profits.
Mutual fund of debt instruments: are those products that invest all of the contributions in bank deposits and in bonds and commercial papers of governments and companies. Likewise, according to the duration of these instruments, they can be sub-classified into four types:
- Very short-term funds: the duration of the portfolio is up to 90 days and the maturity of the instruments does not exceed 360 days.
- Short-term funds: the average duration is greater than 90 and up to 360 days.
- Medium-term funds: the average duration is greater than 360 and up to 1080 days.
- Long-term funds: the average duration is greater than 1080 days.
Moderate mixed mutual fund: are those products that invest at least 75% of their assets in debt instruments and a maximum of 25% in equity instruments.
Balanced mixed mutualfund: these are those that invest at least 50% of their assets in debt instruments and as a minimum percentage in variable income 25%. Consequently, the maximum investment percentages are 75% and 50% in debt and equity instruments, respectively.
Mixed growth mutual fund: are those products that invest at least 25% of their assets in debt instruments and as a minimum percentage in variable income 50%. Consequently, the maximum investment percentages are 50% and 75% for debt and equity instruments, respectively.
Variable income mutual fund:are those products that invest at least 75% of their assets in variable income instruments.
Fund of funds:are those funds that establish in their policy the investment of at least 75% of their assets in other open funds, being able to invest exclusively in a single mutual fund.
Sectoral Mutual Funds: They reflect a specific sector of the economy, such as telecommunications, energy, or heavy industry. Sectoral mutual funds are highly volatile; they, of course, can bring huge profits.
Index fund: These are always linked to a specific stock index and completely copies the composition of the portfolio of securities from which the index is formed. At the same time, the discrepancy between the share of a security in the index and in the portfolio of an index mutual fund can be no more than 3%.