Dear Friend,
I hope you
read and loved my previous 2 posts on this blog. Now, you have basic
understanding of Earning and Saving money.
As
famously said there are two types of people in World, One who know share trading
and another are those who don't know which bird share trading is.
If you
haven't started the share trading yet, don't worry there is always a first time
for everyone. I also started Trading 6 years back accidentally. I opened my
first Demat account just because my company was giving its employees some
shares to mark its 30 years of listing on the stock exchange. That's how my
journey started. Now, it’s my turn to pass-on the knowledge to you to make your
journey smooth and easy.
1.
Stock
market/ Share Trading :
The stock
market is a place where stocks and bonds are "traded" – i.e. bought
and sold. The primary goal of trading is to buy the stock, hold it for a time,
and then sell the stock for more than you paid for it.
BSE and NSE: platforms to buy and sell
shares
In India,
primarily the share trading in the stock market takes place on the two stock
exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange
(NSE). The BSE started its operations in 1875. The NSE started some years back
in 1994. Both exchanges follow the same trading mechanism, trading hours,
settlement process, etc.
Market Indexes
The two
important Indian market indexes are Sensex and Nifty. Sensex includes
shares of 30 firms listed on the BSE,
Second
index is the Nifty; it includes 50 shares listed on the NSE.
Now you
have a slight idea what Stocks/shares are and where they are traded. I will
give the finer details about investment in my next post.
2. Mutual Funds
Mutual
funds are the pool of money that is maintained by the AMC, Asset
Management Company. AMC invests the money, collected from all it investors, in
various investment options to achieve profits. The Mutual Funds usually
invest their funds in equities, bonds, debentures, Gold, etc, depending on the
objectives and terms.
Each AMC
appoint Fund Managers, who are professionally qualified, to manage the money
poured by investors. For these services, AMC charge a small fee mostly in the
range of 1.5 to 3%.
NAV means Net
Asset Value. The investments made by a Mutual Fund are marked to
market on daily basis. In other words, we can say that current
market value of such investments is calculated on daily basis. NAV
is calculated after deducting all liabilities of the fund and dividing by
number of units outstanding. NAV on a particular day reflects the value that
the investor will get for each unit if the scheme is sold on that date.
This NAV keeps on changing with the changes in the market rates of equity and
bond markets. Therefore, the investments in Mutual Funds are not risk
free, but a well-managed Fund can give better returns than some other
investment options.
VARIOUS TYPES OF MUTUAL FUNDS :
For a
first time investor the mutual fund market is so much confusing that he is
afraid of investing in these funds as he cannot differentiate between different
types of Mutual Funds.
To make
the tedious task simpler for you, Mutual Funds can be classified into following
categories under the following different heads:-
1.
ACCORDING
TO TYPE OF INVESTMENTS :-
When
launching a new scheme, all Mutual Fund houses are obliged to declare the
kind of instruments in which it will make investments of the funds collected
under that scheme. So, the following is the list of Mutual fund types based on
type of investment
- ·
EQUITY FUNDS
- ·
DEBT FUNDS
- ·
INDEX FUNDS
- ·
SECTOR SPECIFIC FUNDS
- ·
DIVERSIFIED FUNDS
- ·
GILT FUNDS
- ·
MONEY MARKET FUNDS
2. ACCORDING
TO THE TIME OF CLOSURE OF THE SCHEME:
When launching a new scheme, Mutual Funds also
declare whether it will be an open ended scheme (i.e. there is no specific date
when the scheme will be closed) or there is a closing date when the investments
will be redeemed. Thus, according to the time of closure schemes are
classified as follows:-
·
OPEN ENDED SCHEMES
·
CLOSE ENDED SCHEMES
3. ACCORDING
TO TAX INCENTIVE SCHEMES:
Mutual Funds are also allowed to have some tax saving schemes.
·
TAX SAVING FUNDS
·
NOT TAX SAVING FUNDS / OTHER FUNDS
4. ACCORDING
TO THE PAYMENT OF DIVIDEND
·
Dividend payment option
·
Dividend Re-investment option
·
Growth option
As mostly clear from the name itself, Mutual
funds with Dividend payment option pay-out the dividend to its investor at some
interval of time. Whereas, in Dividend re-payment option, the declared dividend
is re-invested and resulting units are given to investor.
In Growth
option all focus is on increasing the NAV of the units. There is no Dividend
paid in this option.
The mutual
fund schemes come with various combinations of the above categories.
Therefore, we can have an Equity Fund which is open ended and is dividend
paying plan.
These are
some basic details of the Stock market and Mutual funds. Hope you found it
interesting. In my nest post, I will focus more on the finer details of
investment tips and tricks in Share market and Mutual funds .
Stay tuned!
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