The lay investor is generally found to be lacking in the knowledge
and skill required to make sound investment decisions. Even if he
has the knowledge, he need not necessarily have the time to keep track
of events, understand their implications and act speedily. It is difficult
to keep track of ownership of assets, investments, brokerage dues
and bank transactions. In such a situation, a Mutual Fund investment
is the answer.
What is a Mutual Fund ?
A Mutual Fund is a low cost, diversified, professionally managed portfolio.
Anybody with a few thousand rupees can invest in Mutual Funds. Various
schemes like Systematic Investment Plan (the investor has the
option of investing in small instalments) or Systematic Withdrawal
Plan (the investor has the option of redeeming the income earned
every month or every quarter), make this option attractive to the
individual investor.
The Mutual Fund does all the research, investments and transaction
processing on behalf of the individual. It pools the savings of a
number of investors who share common financial goals. These are invested
by the fund manager in different types of securities. These could
be Shares, Debentures, Balanced (Shares + Debentures) or
Money market instruments (Call money, Government Securities, etc).
The income thus earned and the capital appreciation is shared by the
unit holders in proportion to the number of units owned by them (pro
rata).
Mutual Funds have come a long way. From only one player and a lone
scheme in 1964 (UTI) to as many as 400 schemes and 34
players in the market today. More regulation has come in and focus
has shifted to recession-free sectors like Pharmaceuticals, FMCG
and Technology.
Advice for the individual investor Any Mutual Fund investor should stay in the scheme for a minimum
period of 2 to 4 years to make money.
Investor education is very important for any scheme to succeed. An
investor should understand that the fund manager of any Mutual Fund
always makes a thorough study of the companies he invests in. Factors
like Return On Capital Employed, Return On Equity, fundamental
research like raw material procurement, efficient usage of assets
(whether the company's plant and machinery is being used efficiently
or not) and economic viability of projects undertaken by the
company, are taken into account before an investment is made.
The Association of Mutual Funds of India(AMFI) requires
the distributors of Mutual Fund products to undergo an online certification
programme. They have to be certified to sell these products, so that
the investor can make healthy, informed investment decisions.
Trends in Chennai
According to a Mutual Fund Industry source,
the volume of investment in Mutual Funds in the city and suburbs
can be anywhere between 15 to 20 crore rupees.
The Mutual Fund schemes are recommended to the individual investor
keeping in mind his risk-taking potential. For example, they
would not recommend a scheme, which invests in money market
instruments to a 60-year old man, as the money market is by
nature very volatile.
The first quarter of this year was boom time for the Mutual
Fund Industry. But end of March saw a different picture altogether.
As the stock market took a tumble, several investors exited
in panic.
