Don’t be under the wrong notion that investment in mutual funds is a complex process and is not your cup of tea. It is rather an investment company that pools your money for the mutual benefits of those who invest in it. The benefits of mutual fund investment include:

Money Management by Professionals: One might have a capability, as an investor to take the right financial decisions but to make sound and effective investment decisions; a qualified and professional approach is a must. If one or more aspect is left out, it can result in failure or loss of investment so analytical guidance of a financial manager is must. Mutual fund is an answer to all the considerations of investment. Mutual funds allow an investor to entrust the investment decisions on the fund manager. It is then his responsibility to decide which securities to buy, when to buy and when to sell. They keep a close watch on the markets and invest and reinvest as and when needed. Their decisions and way to work are a result of experience and research skills in the field.

Low Investment and a good portfolio: A small investor generally takes all the investment decisions by himself. But mutual funds allow these investors to get the benefits of professional advice despite their low investment. Moreover, the portfolio gets richer by having proportionate share in securities one cannot think of buying individually.

Lower Transaction Cost: A mutual fund, on its merit as well as its high volume of its investments, can carry out buying and selling transactions in a more cost effective manner than an individual would do by himself. Moreover the time and effort invested towards the decision-making is also saved considerably.

Diversification: Mutual Funds put their funds in a various securities thus the resultant portfolio is diverse. This diversification reduces risk factor associated with owning a single security. An individual investor can never invest in such a pool of securities but Mutual Funds gives them an opportunity to do so. The Mutual Funds define a proportionate ownership in the complete portfolio of that particular fund. Thus the money gets invested across different categories and various asset classes.

Liquidity: Mutual Funds investment provides investors a simple entry into their investment. Open-ended mutual funds are very liquid; these funds buy back your shares at the prevailing market value on any day. These mutual fund redemptions are applied for via telephone or mail. Generally, the redemption amount is mailed in form of check to the investor on the successive business day following acceptance of the request.

Good Bargaining Capacity: Mutual Fund is a collective medium of investment. The investment of many people is pooled together thus the securities to be bought are bought in volumes. With ample amount of funds, the advantages in terms of bargaining capacity of funds increase.

Tax Benefits: Mutual Funds offer tax Benefits and are ideally suited for investors looking for tax concessions. These funds offer tax rebates to investors under section 88 of the Income Tax Act. Saving in Capital Gains under section 54EA and 54EB are also provided.

Tax Saving Schemes

These schemes give tax rebates to the investors under explicit requirements of the Income Tax Act, 1961 as well as saving in Capital Gains under section 54EA and 54EB, as the Government offers tax incentives for investment in particular avenues. Pension schemes offered by Mutual Funds, equity linked savings schemes are allowed as deduction under Section 88 of the Indian Income Tax Act, 1961. For example investing in diversified equity fund will never give you any tax benefits whereas investing in ELSS will show the tax benefits in the year of investment itself. The amount you invest in one financial year (April 1 to March 31) will be deducted from your taxable income that year. Tax-saving schemes mainly aim towards growth so they basically invest in equities. However, the risks associated with them are similar to any equity scheme.

Index Schemes

Under this scheme the mutual funds also called Index Funds imitate the performance of a specific index. The American index that is most commonly imitated is the S&P 500 by buying all 500 stocks using the same value as the index. BSE Sensex, the NSE S&P CNX 50 in India, NASDAQ 100, Russell 2000, MCSI-EAFE, Wilshire 5000 etc are the other popular stock indexes followed. These funds invest in a set of securities which moves according to a popular index used as a benchmark.and are called passive funds. The index determeines the choice of investments thus leaving the fund manager with no research on securities. However he only needs to adjust the funds i.e. buy and sell shares with change in Index. Thus the passive performance of funds is obvious causing a lower expense as compared to actively managed funds. The net asset value in Index schemes is directly proportional to the index they follow. However due to some factors such as tracking errors the percentage of change varies with each security. This variation is always mentioned in mutual fund document provided.Traditional Index schemes allow the change the share price only once a day. A new type of funds – Exchange-traded funds(ETFs) have a different approach. These index funds sell shares at a price that changes throughout the day, thus increasing the liquidity. Their practical approach have made them a hot cake financial tool with a bright future.

Sectoral Schemes

Sectoral Schemes are the ones that invest solely in particular sectors such as Fast Moving Consumer Goods (FMCG), Metal Industry, Information Technology, Petroleum Stocks, and Pharmaceuticals etc. The profits are dependent on the performance of particular industries. Unlike the equity schemes the portfolio of these schemes is limited to the particular sectors or industries. Therefore the risk factor associated with these schemes is usually high. A close watch on the rise and fall in the values of these securities is a must in order to avoid any unexpected results. Thus the user must exit from the scheme once there is a fear of losses in that particular sector else there is a risk of losing investment.

Janus Capital Management, one of the largest equity managers in the United States of America manages over $76 billion in mutual funds on behalf of their investors. The underlying focus of the company is on growth and core international mutual funds, extending their reach into balanced fixed income and money market funds. With about, 40 mutual funds along with bonds and money market funds Janus offer a full line of individual investor services.
Janus Capital Management, one of the largest equity managers in the United States of America manages over $76 billion in mutual funds on behalf of their investors. The underlying focus of the company is on growth and core international mutual funds, extending their reach into balanced fixed income and money market funds. With about, 40 mutual funds along with bonds and money market funds Janus offer a full line of individual investor services.Janus Mutual Funds make it easy for an investor to get started. In order to open a non-retirement account the minimum requirement is as little as $2,500. For a retirement account or a college saving account the minimum opening investment required of the investor is only $500. About 99.0% of the funds offered by Janus Capital are no load mutual funds. This aspect is important when an investor is thinking of investing in a mutual fund as loads significantly impact the total returns on the investment. Over the last five years the average return on Janus Mutual Funds has been 2.71%.

The expense ratio of Janus Mutual Funds runs from below average to very low as compared to most other mutual funds. On a domestic stock fund the average annual fee that is charged is just 0.91%. Nearly, 75% of Janus Mutual Funds are invested in domestic stocks.
Janus funds have their own unique objectives although they all have the same research-oriented and a hands-on investment approach for picking great companies.
Mutual Funds can be categorized into; stock funds, bond funds and money market funds. The stock funds that are available from Janus are; growth funds, specialty growth funds, core funds, risk-managed funds, value funds, international and global funds.
Although no cornerstone mutual fund such as the Magellan fund, there are some stand out mutual fund performers within the Janus family:
 

Janus Aspen International Growth (JAIGX): The funds focus is on international growth stocks with over $1.4 billion in assets. The funds main stock holdings are manufacturing (54.9%) and the services industries (34.3%). This no load fund carries an expense ratio of 0.70% and the minimum investment is $500,000. Over the last five years the total returns has been 14.51%. Some of the top companies held under the fund are Reliance Industries, The Tata Iron & Steel and Li & Fung Ltd.
 

Janus Overseas (JAOSX): Aimed at the large cap sector this overseas growth fund has about $4.2 billion in assets. With a minimum investment of $2,500 for this fund the main stock holding sectors are manufacturing (55.1%) and services (34.1%). This is a no load mutual fund and has an expense ratio of 0.89%. This growth fund invests in overseas companies based not on their geography or industry sector, but rather on their individual merits. Top holdings include Samsung Electronics, Tata Iron & Steel and Reliance Industries.

Janus Contrarian (JSVAX): With over $3.5 billion in assets this is a large blend fund for individual investors. The fund carries an average return of 12.14% calculated for over a period of 5 years. It is a no load mutual fund with an expense ratio of 0.93%. The top three holdings include St. Joe Corporation, Liberty Global and Ceridian Corporation. The funds assets are 100% invested in stocks.
 

A leader in the mutual funds industry and a popular choice among investors, the Vanguard Group was founded in the year 1975, and has well over $800 billion under management. The Vanguard family known for its educational outreach and indexing expertise pioneered indeed mutual funds in 1974.

The Vanguard Mutual fund consists of over 100 mutual fund portfolios (no sales commissions on any of them). The Vanguard 500 Index Fund is the single largest fund in the world having out-performed many other competing large mutual funds (nearly $100 billion invested in this fund). Many of their funds have a 5 star rating from Morningstar. Some of Vanguard’s Mutual Funds are invested in so heavily that they have closed them to new people.

Vanguard’s broad array of mutual funds that are both actively managed and indexed are specifically designed to enable and support long-term investment. The fund’s policies, with strict rules protect the investor from costs arising due to short-term trading. The investor is provided with information and perspective which enable one to make smart decisions for investment and thereby increase the chances for a long-term success.

Under the supervision of a professional manager, mutual funds investment portfolios are regularly and continually adjusted. The professional manager forecasts the future performance of investments which will be appropriate for the fund thereby, choosing the ones believed to match closely the fund’s investment objective, such as long-term growth, high current income or the stability of principal. A fund may invest in stocks, bonds, cash investments or even a combination of these financial assets.

Vanguard’s ‘no load’ (meaning that the buyer pays no sales commission-called a ‘load’- when buying or selling the fund shares) mutual funds are very appealing and attractive to the educated investor who clearly knows and understands how much every percentage point counts.

Mutual funds have become very popular as they offer the investorfollowing advantages:

Diversification: A single mutual fund can hold securities from hundreds of issuers. This is far more than what most investors could be able to afford on their own. Serious losses due to problems in an industry or particular company are considerably reduced due to diversification.

Professional management: Investors who do not have the expertise or lack time to manage their personal investments, to be able to reinvest effectively the interest or dividend income or investigate the thousands of securities that are available in the financial market, prefer to rely on a mutual fund investment advisor. The advisor having access to the extensive research and market information decides which securities to buy and sell for the fund.

Liquidity: Investors have easy access to the money as shares in a mutual fund are bought or sold on any business day.

Convenience: Mutual fund shares can be bought or sold by mail, internet or through telephone, enabling the investor to be able to easily move money from one fund to another as and when the financial needs change. Most of the major mutual fund companies offer extensive recordkeeping services, which enable you to track your transactions if so desired, enable you to follow your fund’s performance and complete your tax returns.

Net asset value or “NAV,” of a fund is determined by dividing the net assets of the scheme by the number of outstanding units on the valuation date. NAV is calculated by adding up the present market value of securities, cash, accrued income owned by the fund then subtracting liabilities and dividing the result by the number of units outstanding.

Total Value of Securities (Bonds, Debentures, Equity etc.) : $ 2000

Cash : $2500

Liabilities : $1500

Total outstanding Units : $150

NAV = [(2000 +2500-1500)/150] = $20 per unit

Mutual Funds generally calculate their NAV at least once every business day on basis of market price. A closed-end fund -whose shares are not required to be repurchased by the fund i.e. not redeemable – is not subject to this requirement but may be published at monthly or quarterly intervals. The share price of mutual funds is based on their NAV. The price that investors pay to purchase mutual fund is the approximate per share NAV, plus any fees that the fund imposes at purchase. The price that investors receive on redemptions is the approximate per share NAV at redemption, minus any fees that the fund deducts at that time.

What is LOAD?

A load is a payment an investor makes to the mutual fund’s management team or a broker when he buys or sells the shares .No-load funds are direct opposite of Load funds. They do not charge investors sales fees or commissions. In a load fund, the seller of the fund shares, generally a broker, receives a load i.e. the sales commission paid to the seller. The individual or the company responsible for the fund organization does not receive a load. So, a load is no incentive for the fund manager. However, a secondary party or a broker benefits financially for assisting the investor in buying shares of the fund.

The mutual fund loads can be of following types:

Front End Loads

Purchase Fees

Back End Loads

Redemption Fees

Front end loads and purchase fees are paid by the investor on buying units of the mutual fund are purchased. These loads come in Entry loads so front loads and purchase fees are deducted from the investor’s cash before the money is deposited into the account. For example, Tom wants to buy shares in a mutual fund and pays the broker $4000 on a fund with a 5% front load. Here the money deposited into the account : $4000 – 5% = $3800.

Back end loads and redemption fees come under Exit Load and are paid by the investor when mutual fund shares are sold. Again Back end loads go to the broker and redemption fees is for management team. These loads are deducted from the account of the investor. For example, an investor sells all their shares in a mutual fund and the value of those shares is $5,000 and the fund has a back end load of 2.0%. This means the account holder would receive $5,000 – 2.0% or $4,900.The exchange fee is charged by some mutual funds when the shareholder exchanges shares in one mutual fund for another. This happens when the fund exchange occurs within the same funds.

No Load Mutual Funds: A notion that is false is that a mutual fund that charges a load does not mean that fund is better than a no load mutual fund. Most of times it is really advantageous to buy no load mutual funds. When an individual purchases shares of a no-load fund, the complete amount goes towards the investment. For example, if the individual puts $3,000 into a no-load fund, that entire $3,000 is invested. While a front load of say 4% will set you back by $120 while there is no set back in former case. So unless the fund is giving a consistent performance in the market ,its better to invest into a no load mutual fund. In this example, the fund is already starting out with a 4% disadvantage – which is a considerable amount for short term funds.

A mutual fund is a company that pools money from many investors and invests the money in stocks, debentures/bonds, equities, short-term money market tools or other securities. The income produced through these investments plus the appreciation of capital earned by the scheme are shared by its entity holders depending on the units possessed by them. Thus, mutual funds can be well thought of as financial middleman in the investment trade who collect funds from the people and invest on behalf of the investors. The Investment objectives outlined by a Mutual Fund in its prospectus are binding on the Mutual Fund scheme. The investment goals state the class of securities in which a Mutual Fund can invest. Generally the portfolio of Mutual Funds comprises of various asset classes such as bonds, debentures, equity, and government securities, equipment. Stocks and bonds are the primary assets of the mutual fund while investing in equipment etc. take a back seat.

Like any other corporation, in exchange for cash the mutual fund issues shares of stock to investors. However unlike most corporations, mutual funds do not issue a fixed quantity of stock but with new investments new shares are issued. A mutual fund may be either an actively managed fund or an indexed mutual fund. A fund manager alters actively managed funds regularly in order to maximize their profitability. They fund manager inspects the market and the sectors a fund invests in and reallocate the fund appropriately. An indexed fund follows a different approach by simply taking one of the major indexes and buying according to that index. Indexed funds change much less repeatedly than actively managed funds. However, an active fund is more profit making.

Mutual funds provide transparency, efficient performance, liquidity, tax benefits and a wide range of schemes.

Mutual fund schemes may be classified on the basis of its investment objective and structure.

On the basis of Structure:

Open-ended Funds: An Open-ended Fund allows investors to buy and sell stock in it on an ongoing basis. It is available for subscription all through the year without a fixed maturity. This mutual fund is designed to issue and cash in shares from investors directly rather than through the stock market.

Close-ended Funds: A Close-ended Fund has a predetermined maturity period, ranging from 2 to 14 years. They do not incessantly offer their shares for sale but sell a fixed number of shares in the initial public offering after which the shares characteristically trade on a secondary market. The cost of closed-end fund shares that do business on a secondary market after their initial public offering is dependent on the market. It may be more than or less than the share’s net asset value.

On the basis of Investment Objective:

Growth Funds: Growth funds aim to provide capital appreciation over a long term. These funds look for the rapidly growing companies in the market. Growth managers take up more risk by paying a premium for their stocks to make a portfolio of companies with high price appreciation. These schemes are perfect for investors looking for growth over a long time.

Income Funds: These schemes invest in permanent income securities such as corporate debentures, bonds and Government securities thus aiming at regular and stable income to investors. The capital appreciation is restricted but the risks involved are lower than those in a growth fund.

Balanced Funds:The aim of Balanced Funds is to provide growth as well as regular income. These schemes dispense a part of their income by investing both in equities and fixed income securities in the percentage as mentioned in their offer documents. This proportion affects the risks and the returns associated with the balanced fund. Balanced funds with identical share in fixed income securities and equities are perfect for investors looking for income and reasonable growth.

Money Market Funds: Money market funds invest in government securities, certificates of deposits, and commercial paper of companies, treasury bills, Inter-Bank Call Money and other highly liquid and low-risk securities. They try to keep their net asset value constant and only the dividend yield goes up and down. Returns on these funds may fluctuate depending upon the current interest rates in the market.

Recently Mutual funds have become popular part of investment portfolio. The range of schemes and income alternatives offered by Mutual Funds can fit in the financial preferences of all classes of investors be it Retail, Corporate or Institutional. Efficiency in performance of mutual funds has inspired a great confidence amongst the investors.

Mutual Funds offer plans keeping in view the risk profile and risk-return preferences of investors. Mutual Funds provide various investments plans in order to suffice a range of investors having various investment plans. These plans depend upon the circumstances of the investor whether he is interested in appreciation, fixed income, reinvestment of this income or retirement and insurance plans.

Some of the important investment plans include:
 

Growth Plan
 

Dividend is not paid-out under a Growth Plan and the investor realizes only the capital appreciation on the investment (by an increase in NAV). A growth plan is a plan under a scheme wherein the returns from investments are reinvested and very few income distributions, if any, are made. The investor thus only realizes capital appreciation on the investment. This plan appeals to investors in the high- income bracket.

Income Plan
 

Dividends are distributed to the investors from time to time. But, the net asset value of the mutual fund scheme under an Income Plan is dependent on the dividend payout.

Dividend Re-investment Plan
 

Generally mutual funds present the investor with an option of taking dividends or an alternative to re-invest the same. In Dividend Re-investment Plan the dividend credited on mutual funds is automatically re-invested on behalf of investor in buying additional units in open-ended funds. This increases the number of units possessed by investor.

Insurance Plan
 

Depending on your life expectancy, lifetime income, disability income, tax advantages, what fraction of income one can spend, various plans are available that provide insurance cover to investors.

Systematic Investment Plan (SIP)

Also called Automatic Investment Plan, SIP is designed for the investors to plan their savings through an ordered regular monthly savings program. In the investor is given the choice of setting up a fixed number of post-dated cheques in favor of the fund. The investor is allotted units on the date of the respective cheques at the applicable net asset value. The investor invests in a specified frequency of months in a specified scheme of the Mutual Fund for a constant sum of investment.

Systematic Withdrawal Plan
 

In contrast to the Systematic Investment Plan, the Systematic Withdrawal Plan (also called Automatic Withdrawal Plan) allows the investor with the facility to withdraw a pre-determined amount or units from his fund at a pre-determined interval. The investor’s units will be redeemed at the applicable net asset value as on that day.

Any investor when making financial investments can follow only three important and distinctive objectives: – keeping the value of the invested money (investing in a monetary system that is stable to protect the income in under-evolved economies) 

– gaining a profit from the invested money (most typical example are the bank deposits that regulate pay out income under the name of interest)  – increasing the value of the invested money (when investments are made in stocks or land/buildings) 

To satisfy the diversified objectives of the investors, the mutual funds administrators created three big fund types that have as a purpose meeting the respective objectives through different placement politics. Technically speaking the three types are: 

Ø Monetary Funds The monetary funds have as an investing objective keeping the value of the invested money. These types of funds are generally addressed to investors that, because of aversion towards risk or other motives (like needing the invested money in a short time), don’t want the value of their investment to decrease. Until now, in the USA, there has never been a monetary fund that ever signalized a decrease in the title value. 

The monetary funds can be successfully used to efficiently evaluate and sustain the current bank accounts (of individuals or companies). There are countries where payments can be made right out of the monetary fund, because sometimes these funds act just like a current bank account. Monetary funds invest usually in stocks that generate income and the variation in profit is very low. Their main investment areas are: national/state bonds, bank deposits, commerce effects emitted by commercial banks or commercial companies with an average withdraw limit of 90 days (they only choose low withdraw limits). 

Ø Income Funds  These funds have as an investing objective gaining a profit from the invested money or generating stable income. They are addressed to those that need supplementary stable income in addition to their current income. Since the majority of the incomes made by the fund are distributed to investors, the stock value doesn’t suffer significant variation. Still, because of the structure of the portfolio, there is a risk that the stock value would decrease.
Generally, investors in income funds are retired persons, young families or families that have to pay for their children’s studies. The investors can opt for cashing the distributed incomes or for reinvesting them automatically in the fund. The income funds will invest mostly in stocks that generate high incomes, but because of the long periods before withdrawal it is possible that they become exposed to value variations. The main investment fields are: bonds, asset mortgages, preferential stocks, common stocks emitted by very good companies with a rule of distributing consistent dividends. 

Ø Growth Funds