Mutual Fund Basics

#1
Hi,

I was trying to find Mutual Fund basics in this forun. Unfortunately there is not much information available on this topic. Can some senior member help in putting more information/tutorial on this?

Also what is the difference between (D) and (G). For example
Birla Mid Cap (D)
Birla Mid Cap (G)
I didn't find much difference in their documentation though...

Thanks,
 
#3
Hi,

I do not know the entire basics of mutual funds, but I can give you whatever info I know.

These days, people can invest money in five different ways (There may be many other options, but let us not discuss more here). The options are given below.

1. Invest in Land - Always appreciation, but no liquidity - Cannot sell immediately.
2. Invest in Gold - Appreciation will be good, liquidity to some extent
3. Invest in Bank - Safe and more liquidity, but returns are not higher.
4. Invest in equities (Share Markets) - High liquidity, but no guarentee for appreciation. Returns depends upon the shares you invest.
5. Invest in Mutual Funds - High liquidity, appreciation can be guarenteed to some extent (though not 100%).

Equity investing is where we buy shares thru brokers or online.
Mutual funds are little different. You buy a mutual fund for 10000 [Say Franklin India Prima Fund (D)], Franklin Templeton gets your money and invest in stock market. They will have an expert team who does all kind of analysis on stock market. The team will recommend list of shares to Franklin Templeton and then Franklin will buy those shares with all the money that investors provided. Based on the performance of the shares listed in the mutual fund's portfolio, your money will grow.

Below are some of the technical terms commonly used for mutual fund.

Entry Load - A commision fee that MF company takes from your money when you buy a MF. Usually this will be around 2.25%. For ex, if you invest 10000 Rs, The MF company will take 225 Rs as a commision fee and the remaining 9775 will be used to purchase stocks.

Exit Load - A commision fee that MF company takes from your money when you sell your MF. Mostly of the MF companies do not charge this.

Dividend - Based on the performance of the shares in your MF portfolio, the MF company will give a bonus amount to the investors (It is almost a mandatory one if you go for Dividend option). This is called Dividend. I purchased Franklin India Prima Fund (D) 18 months back and now it has grown to 16500 Rs and I have received two dividends, one for Rs 1164 and other for 1764 Rs.

(D) - Dividend option of Mutual Fund. In your case Birla Mid Cap (D) is nothing but Birla Mid Cap (dividend) option.

(G) - Growth option of Mutual Fund. If you go for growth option, dividends will not be sent to you. Instead the dividend amount will be re-invested in the same list of shares. In your case, Birla Mid Cap (G) is nothing Birla Mid Cap (Growth) option

SIP - Systemetic Investment Plan. In case if you don't want to purchase a MF for 10000 Rs at once, you can go for SIP. In this case, you can invest 1000 per month for 10 months. This is very similar to recurring deposit option in banks. The only difference is that your money will be invested in shares. The important advantage of SIP is averaging. Your MF performance will not affected much by market fluctuations.

ELSS - Equity linked Savings Scheme - These are usually tax savings plan. The amount you invest in ELSS can be shown for tax concession. If you have invested 10000 Rs in Kotak ELSS fund, you can claim a rebate for 10000 out of the 1 Lakh tax rebate available. However, there will be a locking period for 3 years, which means you cannot sell your mutual fund with in three years. This will give the mutual fund managers a better comfort level for investing in shares.

Hope the above details will be helpful.

Thanks,
Balaji.
 
#4
Very nice,Balaji.........am sure that was of great help to many who are trying to learn abt MF's.

Saint
 
#6
pnbalaji said:
Hi,

I do not know the entire basics of mutual funds, but I can give you whatever info I know.

Hello Balaji,

Wonderful explanation....Thanks for taking time and posting this.
Helped me to understand Mutual Funds.I have never entered this arena but would love to.Any SIP you can recommend from your experience.

Thanks

Roneeth
 
#7
Hi Roneeth,

For the beginners, I always recommend "Franklin India Prima Fund" as this is one of the top performers in the MF world. Beginners will get some kind of good hope in investing in this.

Apart from this, the below two are also good funds.

Reliance Vision (G)
SBI Magnum Global Fund (G)

To me, I have SIP in the following funds.

SBI Magnum Tax gain
Kotak ELSS

I went in the for the above two for tax benefits.

Hope this helps.

Regards,
Balaji.
 
#9
the market is scaling new heights virtually on day to day basis.

to make your money grow market is the best option but you have to be an expert of the trade so it is better to make your investments in MF's.

Cos your money will be invested by the experts on your behalf.

Mr Balaji has given a very good understanding of MF's
 

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