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It is not uncommon to hear the term mutual funds if you have stepped into the world of investments. There is only one opinion among finance experts, invest in mutual funds. For those planning to invest in mutual funds, this article is exactly what you need.

Mutual funds pull money from multiple investors and invest it in stocks, gold, bonds and many other instruments. In order to make an informed decision about where to invest in mutual funds, it is prudent to know the basic types of mutual fund schemes that exist. Investing in mutual funds in India depends on asset class, investment objectives, and risk tolerance.

Now based on the asset class you can wisely choose from the following funds:

1. Equity mutual funds:

   These are funds that invest in stocks or shares of different companies, so the risk involved here is relatively high.

2. Debt mutual funds:

   They invest in securities like government bonds, bills, debentures and will provide you with a fixed interest rate, thus generating a fixed income.

3. Hybrid funds:

   It is also known as a balanced fund. These are funds that invest both in equity and in debt.

Secondly, you need to decide your fund structure while investing in a mutual fund. You can invest in any of these three types of funds:

1. Open-ended fund:

   This fund does not have a maturity period; hence you can exit the investment at any time and you can invest as much as you like through the year and redeem it at the current nav; which is net asset value.

2. Closed-ended fund:

   Unlike the open-ended scheme, you cannot invest throughout the year. You can invest only during the initial launch period known as the NFO which is the new fund offer period.

3. Interval fund:

   It is a mixture of open-ended and closed-ended funds. These funds will be made available for purchase and can be redeemed only during the specific period as decided by the asset management company.

Now based on the investment objective you can choose to invest in one of the following funds:

1. Growth funds:

   In this fund your more significant asset will go into equity stocks and shares. If you plan to maximize wealth in the long term you should choose to invest in growth funds.

2. Income funds:

   Here, your investments will be made in deposits, government bonds, securities debentures and these will give you fixed regular income it is best suited type of fund for you if you are looking for a low-risk investment.

3. Balanced funds:

   These are hybrid funds where you can make some of your equity investment and some investment in debt.

I think these will help you make better investment decisions in mutual funds and you will be able to know which mutual fund suits you the best. Invest now for a better tomorrow.

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As youngsters we always think about investing somewhere or growing our savings. The question is, “Where should we do this?” Invest in mutual funds. A mutual fund sectors size, asset class, and flexibility are generally considered when classifying it. The two types of funds are open-ended funds and close-ended funds.

Open-ended funds are available to investors continuously, whereas close-ended funds are available only for a limited amount of time. Let us understand the difference between these two, availability is the first. It is only possible to purchase close-ended funds during new fund offers or from the stock exchange after they have been listed. Open-ended funds can still be subscribed to after the nfo closes and units can be redeemed whenever they want. Close-ended funds however liquidate when they reach maturity and the money goes to the subscribers based on their holdings. Only a few open-ended funds can be converted into closed-ended funds.

The second one is a fixed corpus. Contrary to open-ended funds, closed-ended funds have a fixed corpus and a fixed term, usually around 3-5 years. Close-ended funds require you to block those funds for a while, open-ended funds however let you buy and sell whenever you want.

So, guys there are two more differences that will give you accurate information on open and close-ended funds, liquidity and listing. Liquidity for open-ended funds is provided by the fund itself while liquidity for close-ended funds is provided by the market. Conversely open-ended funds aren't listed on the stock exchange and handle all transactions themselves. Funds listed on reputable stock exchanges provide liquidity to investors.

Looking at the fourth aspect, it's the unit price. There's no limit how much you can trade on open-ended mutual funds at their current nav. NAV stands for net asset value which is just another name for unit price. Due to the fact that close-ended schemes trade on stock exchanges their prices may differ from their nav. In addition to this there are also some technical differences between these two so you have to make a wise choice when you do need to make investments and think about your future business establishment.

Knowing the NAV of a fund can only help you understand the unit's price on that day. It will be of relevance to the cost of the unit in a fund while buying or selling. Was that a lot of jargons for you? Let us get to the basics and understand what is NAV or Net Asset Value.

Mutual fund scheme consists of several units. Let us take this with an example of a book:

The book is made up of smaller units we call a page. Each page has a page number assigned to it. Similarly, the units of a mutual fund are assigned a value. The value of each unit is known as Net Asset Value/NAV. Similar to the price of each share, NAV refers to the price of each mutual fund unit and like the price of share, the NAV of a mutual fund also fluctuates as per the market. Thus, the NAV in a mutual fund is calculated every day. A mutual fund's NAV is computed when the market closes at the end of each day.

You definitely have some questions, let me answer some of them:

Is it necessary for you to know the NAV of a mutual fund?

Absolutely, knowing the NAV of a fund will let you know the price at which you can purchase the units of that fund. Let us say for example the NAV of a fund is 10, then the price you will have to pay for each unit is Rs 10. It is thus a determining factor while selling and buying units. It will help you know the number of units you have purchased in a fund and the price at which you can buy them.

How is it calculated?

The formula used for calculating NAV is simple. It is the total assets minus the total liabilities divided by the total number of units issued. To understand how the calculation of NAV is done, you first need to understand the concepts used while calculating NAV.

These are:

• Total asset:

  It is the market value of all the securities in a portfolio. It means the investments made in a scheme. This would include equities, bonds, debentures, dividends, and interest accrued.

• Total liabilities:

  Liabilities are the expenses incurred by the fund house, the management or the remuneration paid to the fund manager. They also include the amounts owed towards outstanding payments, money payable, or lenders or foreign liabilities.

• Units:

  It is the total of all units held by the investor in a mutual fund.

When is nav calculated?

Nav is calculated daily at the end of the market day after it closes to maintain some uniformity. But, unlike the stock market the fluctuation is not based on demand and supply. Rather, it is based on the book value of asset.

If the NAV is high or low. is there a threat to the performance of your funds?

NAV of a fund does not indicate the performance of your fund; it only denotes the price of your fund. A high or a low NAV does not determine how lucrative you are fund is. There's a misconception that if the NAV of a mutual fund is high, it will yield you better returns or if the NAV of the fund is low, the cheaper is the investment and the number of units given will be more significant. However, this is not true. If you have the same amount invested into identical scheme, the NAV of your fund is irrelevant. The difference you will find is in the number of units held, among others. The NAV will not determine your investment growth or future returns.

In conclusion, the nature, assets and liabilities of each scheme are different. Therefore, by looking at the NAV in mutual funds you need to focus on the profitability and not changes of the NAV. Knowing the Net Asset Value of a fund can only help you understand the unit's price on that day. It will be of relevance to the cost of unit in a fund while buying or selling.

Systematic Investment Plan or SIP, if judicially used by investors can actually be that tool that can help people retire early by saving early. But one has to be cautious with type of mutual fund schemes he/she chooses. To exploit the full potential of SIP one point is clear, that one has to start investing in SIP at a young age. As more the time, more the gains from the compounding effect.

Let us understand with an example:

As one SIP calculator shows that if one starts investing Rs 1,000 per month, then assuming a return of 10%, the amount at the end of 20 years, this investor would get is Rs 7,18,259 due to the compounding effect.

Now, we will try show the power of investing an SIP at an early age. According to another SIP calculator, if a 25-year-old starts an SIP of Rs 5,000 per month, then assuming 12% return, the investor would have Rs 2.76 cr when he retires at 60. While another person who starts investing at the age of 30 years would get Rs 1.54 cr at 60. Clearly, a gain of Rs 1.22 cr for starting early. Clearly, it’s a big-big advantage for early birds. From this example it clear, the delay in SIP could cost you the few crores.