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Sep 25, 2012

Make Wise Mutual Fund Investment

Jayalakshmi Nair
image As consumer prices are surging day by day, only investment in those avenues that provide a return higher than the current level of inflation is meaningful.

People prefer mutual funds as money can be invested in small lots and have the potential to diversiy risk and gain higher return without possessing great knowledge about the market.

Mutual funds collect money and invest in instruments like shares, bonds and other securities. When a person buy units of a mutual fund he becomes a shareholder or unitholder of the fund. The income earned by the fund or capital appreciation realised are shared by its unit holders.

Mutual funds are bought and sold at net asset value. The net asset value is computed by dividing the total value of all the securities in its portfolio, less liabilities, divided by the number of units.

NAV per unit is calculated once a day based on the closing market prices of the securities involved in the fund.

The history of mutual funds in India dates back to 1963, when the government launched Unit Trust of India. Now the number of funds in India is more than 35.

It is true that mutual funds provide investors a cost efficient way to take exposure to equity, debt, gold, real estate and many other assets. But with the number of schemes available in the market exceeding 3000, it has become more difficult to choose the right scheme.

Now a days, investors think investment in high rated mutual funds offer them high return and safety. However, there is no guarantee that a top rated fund performs better than a lower grade fund. A top rated fund may be downgraded at any time if its performance deteriorate.

So before investing in mutual funds, it is advisable to consider other factors like fund managers' track record, consistency, fund expenses, etc.