CHARACTERISTICS OF MUTUAL FUNDS

1: Investors purchase mutual fund shares from the fund itself( or through a broker for the fund) instead of from other investors on a secondary market, such as the New York Stock Exchange.

2: The price of investor’s pay of mutual fund shares is the fund’s per share ANV plus any share holder fees that the fund imposes at the time of purchase.

3: Mutual fund shares are “redeemable”, meaning investors can sell their shares back to the fund

4: Mutual funds generally create and sell new shares to accommodate new investors. In other words, they sell their shares on a continuous basis, although some funds stop selling when , for example they become too large

5: The investment portfolios of mutual funds typically are managed by separate entities known as “investment advisers” that are registered with the SEC

Mutual Fund-Keys to remember

1: mutual funds are not guaranteed or insured by the FDIC or any other Govt: agency.-even if you buy through a bank and fund carries the banks name. You can lose money invest in mutual fund

2: Fast performance is not a reliable indicator of future performance so don’t be dazzled by last years high returns. But fast performance can help you assess a fund volatility overtime.

3: All mutual have costs that lower your investment returns. Shop around, and use the SEC’s Mutual Fund Cost Calculator at www.sec.gov/investor/tools.shtml to compare many of the costs of owning different funds before you buy.

How does SIP works?

You can enroll for an SIP directly without having to make a one-time investment. Suppose you enroll for a SIP of RS per month for one year in January 2008. Your first investment will be for Rs500 and units will be allotted. As it takes time for an SIP document to be processed with banks, your SIP installments may start latest by March. A few fund house also allow SIPs in their new fund offer (NFO) period. This way, if you like a particular NFO, you do not have to wait for a-month-and-a-half to start an SIP.

You can use a SIP in two ways:
1: By issuing the required number of post-dated cheques, or

2: By authorizing your banker to debit your account on a specific date of a month for the SIP period chosen by you, also known as auto debit facility. This is a more convenient way to invest in a SIP.

Assume you invest Rs1000 every month and your SIP date is the first of every month. On this date, every month, the appropriate number of unit will be credited to your MF account. As your monthly contribution remain the same, if the market and, therefore, your fund’s net asset value NAV) goes up , you will get fewer units; if your fund’s drops you will get more units.

Computing your returns:Ultimately, you need to know the returns you have through your investments. Its easy to calculate returns if it’s a one-time investment because you simply calculate the percentage between the two values.(cost price and selling price) and then annualize it if the time period is more than a year. But how do you do it in a SIP, where there are multiple values, one for each month? Using the XIRR function in Microsoft Excel, You can calculate returns with irregular payments. The IRR’ of X1RR stands for internal rate of return and denotes the interest rate accrude on a investment where there is a series of payment.(SIP installment) and an income (redemption) at the end.

What is SIP?

An SIP is a facility offered by all mutual funds for investing in equity funds. It requires you to invest a fixed sum of money periodically,say monthly,or quarterly,in an equity fund of your choice.The amount can be low as Rs 500 or Rs 1000. Your SIP should last for a minimum of six months.So even if you do not have a lumpsom to commit at the start, you can make a small beginning using an SIP,and then continue to invest periodically.The approach here is similar to investing regularly,every month,in recurring deposits of banks and post offices.However, a SIP gives you the long-term benefit of equity investing.