Mutual Funds:What, How,Why???

Today when we hear about this term Mutual Fund we definitely think what it is and if know it then we have many other queries related to that so let us discuss about it.

What is a Mutual Fund?

Mutual Fund is a type of fund where a huge lump of money is pooled from various persons/investors from different parts of country by a trust/company and are collectively invested and managed in capital market (such as equity, debentures etc) by professionals or skilled individuals associated with this industry. In case of profit or loss being made by the company it is equally beard by the individuals equally according to the contribution made by them. Advantage of this for all those who are interested in capital market is that they can invest in a diversified, professionally managed basket of securities at a relatively low cost and low risk and the Disadvantage is that this a completely dependent on Stock Market so is full of risk i.e one may make huge profit and loss as well.

Which companies are there in India to invest in Mutual fund?

There are many companies in India which are associated with this industry, in fact, nearly every company dealing with finance has its mutual fund company:

1. Reliance Mutual Fund

2. ICICI Mutual Fund

3. Birla Sunlife Mutual Fund

4. UTI Mutual Fund

5. Shriram Mutual Fund

6. HDFC Mutual Fund

7. SBI Mutual Fund

8. Kotak Mutual Fund

9. Tata Mutual Fund and so on....

What is the difference between investment through Mutual Fund investment and directly investing in stock market by our own?

Actually there is no difference here the money is invested by professionals who have good knowledge of this and they keenly watch the market activities and buy and sell accordingly and they know what is the best time to invest where but the profit which we get as return is less as compared to when we invest directly because the wages of employees, other costs and company's profit are take from that only but when we invest by our self we should have proper knowledge about the company's profile and the current market scenario or else individual can lose their money in market or money will be blocked for longer period and will be of no use risk of losing is very high as compared to mutual fund investment. Where as we can get other benefits like insurance and tax saving plan from mutual fund company according to their scheme if any.  

How a Mutual Fund company work?

Company's through their recruited agents/advisor collect money and give it to a fund manager (professional/skilled employee) to invest in capital market which generates some return after sometime and is then given back to investor accordingly till the date the investor keep his money with that company.

How to become a advisor for the company?

For becoming a advisor/agent or make carrier with this industry firstly you have to clear a basic exam of NSE-India i.e AMFI (Association of Mutual Fund in India) and after getting certified you may consult associated companies or they will consult you after sometime. This is need to be certified because one should have prior knowledge of what it is all about.

What is NAV?

NAV is also known as Net Asset Value i.e The value of all the assets minus the liabilities and this is the thing which we get after investment in a mutual fund company i.e NAV per unit alloted to us. For example if we invest RS 2000 and NAV is Rs 20 then we will be allotted 100 units and NAV changes from time to time according to capital market up and down so the next value will be NAV value * No. of unit allotted.

Why to invest in Mutual Fund?

The answer is very simple to grow your money at some risk and some safety having some additional benefit and without tension of money management.

Stock Market and its functioning

What is a stock market?

Stock Market is also known as Share Market where money is invested through different modes such as equity, commodities, etc but mainly trading is done in equity market only where a listed company issues their share like about 10% or so but they avoid to issue share more than 49% of total companies worth or we can say they give partnership to each share holder for the value they pay just to raise money from the market or public for expansion of their business. In this case both profit and loss is beard by the shareholders if any happens. In equity market anyone is free to sell their stock through stock exchange and get rid of it by making profit if company is performing nicely or vice verse at any time they feel to. Companies introduces itself in the market to increase its worth other than raising funds so if equity prices goes down the company loses its worth and its total value decreases. All shares/stocks at a face value/actual value of Rs. 2-10 but depending on the current market status market value of the stock is there for example if a company has very good reputation and is going to be listed in the stock exchange then it might be that its face value is Rs. 10 but market value would be given as 450 i.e the price paid by the buyer. Stock Market is place full of risk where you can make huge profit and sometime huge loss also. In India we have two main Stock Exchange which is located in Mumbai (Dalal Street) i.e BSE(Bombay Stock Exchange) and NSE(National Stock Exchange).

How does share/stock prices changes?

Like any other things share market also works as a normal vegetable/any other market as for example if Potato or Tomato supply is less than demand their price increase and vice versa like this only stock prices are also depended on supply/availabilty and demand of stock method but here in stock market this availabilty and demand is very uncertain i.e it changes min to min or sometime lesser i.e if at a certain time huge buying of a stock occurs its price goes up due to less availabilty of the stock and the other minute/hour when price rises than for profit booking people sell it in huge number due to which prices of stock falls down but due to buying and selling prices doesn't have much fluctuation as compared to news regarding that company or related industry or sometime economic reforms/policy changes by the govt makes it fluctuate. The company outperform or under perform more on the day when their quarterly results are announced where it is made public that whether company has made profit/loss and by how much and if it outperform than stock prices jumps steeply.

How to make profit in Stock Market?

Well this is very difficult to tell anyone where or in which company to invest for making profit because market is very volatile except some days when it outperforms and it has a different mood everyday. Actually mood here is not of a individual or company or stock exchange but of investors who invest there. Sometime trend goes in favour of IT related stocks or sometime in favour of Real State related stocks so while investing one should judge the mood of investors rather than value or status/reputation of the company because mood plays a very important role in supply and demand concept. So keep eyes on news related to stock because if a company has some good news for its expansion than obviously investor will show confidence and invest more so price will go up because company stability will increase in the market. If you are new try to invest in Blue Chip companies i.e those companies that are in top 50 companies of BSE(Bombay Stock Exchange) and top 30 companies of NSE(National Stock Exchange) because they are very stable and good reputation companies and investors have great faith in them and daily transaction in these companies are very high so risk of losing is not much or very minute. But after all the things its totally a luck game.

What is the difference between BSE and NSE?

Here comes the most important question for most of us that what is the difference between BSE(Bombay Stock Exchange) and NSE(National Stock Exchange) so first of all I would like to inform that there are many other stock exchange in India other than these two such as Ahmedabad Stock Exchange or Pune Stock Exchange etc. but these are regional stock exchanges and are less popular as compared to BSE and NSE which are national level exchanges so we just hear the name of these two exchanges only. Now same like two different retail sector stores serving same service the two stock exchange provides same service but having different window/place for trading(buying/selling of share). This BSE and NSE is located in Dalal Street, Mumbai but NSE has its office in delhi and other places too. BSE has kept 30 companies in its list which decides the upward and downward trend of the Sensex because each company according to its status/reputation has been allotted some value i.e if X company share/stock will lose Rs. 4 than sensex will go down by 1 point and vice-versa and like wise for other 29 stocks. Like this only 50 stocks are listed in NSE's Nifty and its performance is decided. These companies may change time to time depending upon its status as their status are not permanent in the market.