The mutual fund industry is a lot like the film star of the finance business. Though it is perhaps the smallest segment of the industry, it is also the most glamorous – in that it is a young industry where there are changes in the rules of the game everyday, and there are constant shifts and upheavals.
The mutual fund is structured around a fairly simple concept, the mitigation of risk through the spreading of investments across multiple entities, which is achieved by the pooling of a number of small investments into a large bucket.
Yet it has been the subject of perhaps the most elaborate and prolonged regulatory effort in the history of the country.
Mutual funds provide the services of experienced and skilled professionals, assisted by investment research team that analysis the performance and prospects of companies and select the suitable investments to achieve the objectives of the scheme.
[...] Each of the policy holder contributes his contribution (premium) into the common large fund is managed by the company on behalf of the policy holders. Administration of that common fund in the interest of everybody was entrusted to the insurance company .It was the responsibility of the company to administer schemes for benefit of the policyholders. Policyholders played a very passive roll . In the course of time , the same concept of sharing and a common fund was extended to different areas like saving , investment etc. [...]
[...] Close Ended Funds A close ended fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the same time of the initial public issue and thereafter they can buy and sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. [...]
[...] ULIP's usually have following charges built into it : Up-front Charges Mortality Charges ( Charges for providing the risk cover for life) Administrative Charges Fund Management Charges Mutual Fund's have the following charges : Up-front charges ( Marketing, Advertising, distributors fee etc.) Fund Management Charges ( expenses for managing your fund) A few aspects of investing in ULIPs versus mutual funds. Liquidity ULIPs score low on liquidity . You can make partial withdrawals after three years. The surrender value of a ULIP is low in the initial years, since the insurer deducts a large part of your premium as marketing and distribution costs. [...]
[...] The premium paid by the client (less any charge) is used to buy units in various funds (aggressive, balanced or conservative) floated by the insurance companies. Units are bought according to the plan chosen by the policyholder. On every additional premium, more units are allotted to his fund. The policyholder can also switch among the funds as and when he desires. While some companies allow any number of free switches to the policyholder, some restrict the number to just three or four. [...]
[...] Taxes During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even you reinvest the money you made. Management Risk When you invest in mutual fund, you depend on fund manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. [...]
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