Invest
Investment Simplified for understanding
Financial investment is very important for any individual.
Compound interest is the most powerful force in the universe. – Albert Einstein
Lets look at 3 different investors. Investor A is the Smart Investor, Investor B is the Late Investor and Investor C the Hard Investor.
- Investor A: Smart Investor, starts saving 200/month at age 20 for 10 years
- Investor B: Late Investor, starts saving 200/month at age 30 for 10 years
- Investor C: Hard Investor, starts saving at 200/month at age 30 until retirement
(65, 35 years)
*Assume 7% interest
Lets have a look at the table below:
The shaded area indicates the years in which an additional 200/week was added into the savings. The graph shows:
- By investing earlier, by 10 years, Smart Investor has more than doubled Late Investor.
- Hard Investor started saving 10 years behind Smart Investor and even though Hard Investor saved an extra 200/month for 25 years more (35 years compared to 10 years), Hard Investor still has 39,702.54 less than Smart Investor.
The moral of the story? The sooner you start saving the quicker you will see power of compound interest! Even if you are late investor or hard investor contact us for suitable guidance.
MUTUAL FUND
CONCEPT
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:
Mutual Fund Operation Flow Chart
ORGANISATION OF A MUTUAL FUND
There are many entities involved and the diagram illustrates the organisational set up of a mutual fund:
ADVANTAGES OF MUTUAL FUNDS
The advantages of investing in a Mutual Fund are:
- Professional Management
- Diversification
- Convenient Administration
- Return Potential
- Low Costs
- Liquidity
- Transparency
- Flexibility
- Choice of schemes
- Tax benefits
- Well regulated
TYPES OF MUTUAL FUND SCHEMES
Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.
FREQUENTLY USED TERMS
Net Asset Value (NAV) : Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.
Sale Price : Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.
Repurchase Price : Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.
Redemption Price : Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.
Sales Load : Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.
Repurchase or ‘Back-end’Load : Is a charge collected by a scheme when it buys back the units from the unit holders.
“Mutual Fund investments are subject to market risks, read all scheme related documents carefully”