What does mutual fund mean to common man?
`Mutual fund` seems synonym of `Bollywood` to me. Let`s find out here what`s the relation between two diverse worlds one in entertainment and other in investment has?
Back to past in 1980`s - 90`s era:
This was a time in Bollywood when producers used to bet on single hero projects and invest heavily in one particular movie. Audiences were getting excited to watch this movie if a hero is popular face such as Amitabh Bachchan, Dev Anand, Dilip Kumar, etc. But, if the script and direction is weak than such caliber actors of Bollywood also can`t help to make this movie perform and it gets bombed at box office. The situation discussed here is similar to investors of that period betting heavily on equities of single company. There were investors who use to have stocks of single company for example `Reliance Industries` or `Tata Motors` in their portfolio. Investors bet on company management, future prospects, profit numbers, etc. But, if this company underperforms due to lack of experience by core management than their stock prices had shed immediately on markets. This made the investors suffer heavy losses on their portfolio. Then time came investors started understanding need for diversified asset allocation…
Present Scenario:
Now, the time has changed and audience preferences. Producers have now started betting on multiple actor projects where they showcase the talent of each actor in strong character role. Audiences are also excited to watch their favorite stars perform to their best in a single movie. Recent example of a movie which was successful due to huge start cast and showcase of decent performance onscreen is `Rajneeti`. The movie had a strong storyline and director executed this movie exceptionally well. Similar, is the story for mutual fund the asset management company invests the pool of money collected from investors in diversified star performing / emerging companies. This makes their risk diversified among many company stocks. Every company is considered as an important character in their mutual fund scheme. So, if one company is underperforming and suffer losses than it gets adjusted with other company which is outperforming and making profits in that portfolio. Here, the fund manager is a director who takes care of asset allocation / returns from the mutual fund scheme and fund offer can be said as story line which gives general clue to investors where the amount will be utilized from their investments.
`Mutual fund` seems synonym of `Bollywood` to me. Let`s find out here what`s the relation between two diverse worlds one in entertainment and other in investment has?
Back to past in 1980`s - 90`s era:
This was a time in Bollywood when producers used to bet on single hero projects and invest heavily in one particular movie. Audiences were getting excited to watch this movie if a hero is popular face such as Amitabh Bachchan, Dev Anand, Dilip Kumar, etc. But, if the script and direction is weak than such caliber actors of Bollywood also can`t help to make this movie perform and it gets bombed at box office. The situation discussed here is similar to investors of that period betting heavily on equities of single company. There were investors who use to have stocks of single company for example `Reliance Industries` or `Tata Motors` in their portfolio. Investors bet on company management, future prospects, profit numbers, etc. But, if this company underperforms due to lack of experience by core management than their stock prices had shed immediately on markets. This made the investors suffer heavy losses on their portfolio. Then time came investors started understanding need for diversified asset allocation…
Present Scenario:
Now, the time has changed and audience preferences. Producers have now started betting on multiple actor projects where they showcase the talent of each actor in strong character role. Audiences are also excited to watch their favorite stars perform to their best in a single movie. Recent example of a movie which was successful due to huge start cast and showcase of decent performance onscreen is `Rajneeti`. The movie had a strong storyline and director executed this movie exceptionally well. Similar, is the story for mutual fund the asset management company invests the pool of money collected from investors in diversified star performing / emerging companies. This makes their risk diversified among many company stocks. Every company is considered as an important character in their mutual fund scheme. So, if one company is underperforming and suffer losses than it gets adjusted with other company which is outperforming and making profits in that portfolio. Here, the fund manager is a director who takes care of asset allocation / returns from the mutual fund scheme and fund offer can be said as story line which gives general clue to investors where the amount will be utilized from their investments.
Variety under mutual fund schemes:
As audiences prefer different genre of movies such as comedy, action, emotion, adventure, sci-fiction, etc. based on their interest. Similarly, asset management company has variety of schemes to offer for their investors based on their risk taking capacity and expected returns. There are index funds, sector oriented funds, global funds, balanced funds, etc.
Applicable charges:
To view movies audience has to bear the ticket charges or cost to buy DVD / VCD. Similarly, to get services of mutual fund investors have to bear annual charges for administration as well as pay exit load specified if applicable on offer document of scheme.
Advantages of investing in mutual fund:
> Professional management by Fund Manager
> Diversification of stocks
> Convenient Administration
> Return potential in schemes being offered
> Low costs to investors
> Liquidity to convert in cash
> Transparency and flexibility in operations
> Variety of schemes to select before investing
> Tax benefits products
> Well regulated by SEBI
As audiences prefer different genre of movies such as comedy, action, emotion, adventure, sci-fiction, etc. based on their interest. Similarly, asset management company has variety of schemes to offer for their investors based on their risk taking capacity and expected returns. There are index funds, sector oriented funds, global funds, balanced funds, etc.
Applicable charges:
To view movies audience has to bear the ticket charges or cost to buy DVD / VCD. Similarly, to get services of mutual fund investors have to bear annual charges for administration as well as pay exit load specified if applicable on offer document of scheme.
Advantages of investing in mutual fund:
> Professional management by Fund Manager
> Diversification of stocks
> Convenient Administration
> Return potential in schemes being offered
> Low costs to investors
> Liquidity to convert in cash
> Transparency and flexibility in operations
> Variety of schemes to select before investing
> Tax benefits products
> Well regulated by SEBI
Back to Future:
The future of mutual fund product seems bright. There are many investors who have entered into stock market thru this product because they lack the understanding of investing directly into equities and this number will keep on growing whenever there will be awareness among non-investing class of people. As, we are observing there are experimental movies such as `Phas Gaya re Obama` targeting multiplex going viewers as their audience. Similarly, asset management companies are also churning out new structured products whenever they find an opportunity to explore and target specific investors segment. This will keep on attracting investors towards their new offerings time to time and will see asset under management of mutual fund industry increasing year-on-year.
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