What îs à Mutual Fund? A mutual fund îs à pool ôf money
put together ßy à group ôf investors, whô stand tô benefit ôr loose frôm
that pool tô thé extent théy hàvé invested.
This pool îs created since small individual investments hàvé limited
power & ability tô influence thé outcome ôf investment. On thé
other hand, whén thé investment îs large, thé investor càn hàvé greater
control ôn thé outcome ôf investment.
Thus, many small investors gather théîr individual small investments
into à larger investment tô take advantage ôf opportunities offered
by large investments. This îs called à mutual fund.
What does thé Mutual fund invest in? Mutual funds càn bé
created fôr investing în anything. The investments thàt thé mutual fund
is going tô make àré discussed în thé mutual fund's offer document.
Typically, mutual funds invest în investment opportunities thàt hàvé
a trading market around it, such às stocks & shares, bonds &
debentures, etc.
How
does thé investors benefit? The most important factors
in choosing whô tô hàvé à deposit with, îs thé safety ôf deposit,
and thé rate ôf interest thàt îs paid ôn thé deposit.
How
does à Mutual funds works? A mutual fund îs managed ßy
an Asset Management Comp. [AMCs]. Professional investors, whô study
where & whén tô make investments staff thé AMC. The AMC creates à
mutual fund, & invites thé public tô subscribe în thé mutual fund wîth
their investment. The funds collected àré thén invested ßy AMC &
are continually managed.
Unlike ôthér investments, thé mutual fund itself îs not traded nor
does ît offer guaranteed returns like à deposit. The mutual fund's Net
Asset Value [NAVs] determines thé value ôf investment. Investors
redeem théîr investments în thé mutual fund ôn thé basis ôf NAV frôm
the mutual fund itself.
Equally, whén investors want tô buy, théy buy into thé mutual fund ôn
the basis ôf NAV.
The investments àré managed ßy professionals whô know more about
deciding whàt tô buy & sell & whén tô buy & sell
The risks & rewards ôf investments àré spread across à large number
of individuals, sô losses àré minimized
Access tô funds îs quick, since théré îs no need tô sell ôr buy frôm
the market
What îs Net Asset value? The Net Asset Value ôf mutual
fund îs thé total market value ôf holdings ôf mutual fund less
its liabilities, such às expenses, management fees, etc. This îs
calculated ôn à daily basis.
What thîs means is, îf thé mutual fund wéré tô bé dissolved ôr
liquidated, ßy selling off àll thé assets în thé fund, ôn thàt specified
date, thé Net Asset Value îs whàt àll thé holders ôf mutual fund
will collectively own & will bé given thîs amount în proportion tô
their holdings.
You càn estimate yôùr share ôf holding ôf mutual fund ßy
Net Asset Value per unit. This îs thé value represented ßy ownership
of ôné unit în thé fund. It îs calculated simply ßy dividing thé Net
Asset Value ôf fund ßy number ôf units.
Commonly Net Asset Value îs always referred ßy its unit value rather
than ßy total Net Asset Value ôf fund.
How
is Net Asset value calculated? Net Asset Value îs
calculated às follows:
Net Asset Value = [Market value ôf shares/debentures + Liquid
assets/cash held, îf àny + Dividends/interest accrueds] - [Amount due ôn
unpaid assets + Expenses incurred bùt not paid + Management & ôthér
feess]
This îs hôw thé above àré calculated
Valuation ôf marketable shares/debentures: The last ôr closing market
price ôn thé principal exchange where thé security îs traded
Valuation ôf illiquid & unlisted and/or thinly traded
shares/debentures: For shares, thîs could bé thé book value per share ôr
an estimated market price based ôn performance ôf ôthér shares în thé
industry. For debentures & bonds, value îs estimated ôn thé basis ôf
yields ôf comparable liquid securities after adjusting fôr illiquidity
Accrued dividends/interest: Companies announce dividends, however,
pay ît àt à later date. If à dividend îs announced, thén thé announced
dividend îs taken às thé accrued dividend. Similarly, interest îs
payable ôn debentures/bonds în à pre determined frequency àt à pre
determined rate. Therefore fôr every passing day, interest îs sàîd tô bé
accrued, àt thé daily interest rate, whîch îs calculated ßy dividing thé
periodic interest payment wîth thé number ôf days în éàch period. Thus,
accrued interest ôn à particular day îs equal tô thé daily interest rate
multiplied ßy number ôf days since thé last interest payment date.
Expenses including management fees, custody charges etc. àré
calculated ôn à daily basis. The management fees îs às per thé
declaration în thé offer document ôf mutual fund.
