PowerMF Blog – Empower Yourself

Like any building, which requires 4 pillars to stand on, personal wealth creation also requires 4 strong pillars. All financially successful people have gotten their success thanks to their understanding of these 4 pillars. They are

1.    Nothing happens without a Plan

2.    Knowledge your only weapon

3.    Risks & Return Trade Off

4.    Importance of Liquidity

Nothing happens without a Plan

Planning is the most important part of any activity. Wealth Creation and Investments are no different. The areas which need to be planned include:

a.    Income, Expenditure and Savings

b.    Investments

c.     Tax

d.    Insurance

e.    Retirement

f.      Goal Setting

The most important part of the Plan is to define your Goals in an un-ambiguous manner. There are various Financial Planners available who provide a comprehensive plan. However, it is your responsibility to articulate your goals in life and more importantly for implementation of these plans. Hence, a clear commitment to these plans as well as the Goals is a pre requisite for success in your journey towards financial independence and wealth creation.

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Mutual Funds can be categorized to different types of schemes based on various factors. The most common and often used categorization by the following factors:

1. Based on Structure of the Scheme
2. Based on the Asset Class invested in
3. Special schemes

Categorization by Structure:

There are commonly 3 structures used viz.

1. Open Ended Mutual Fund Schemes
2. Close Ended Mutual Fund Schemes
3. Interval Schemes

Open Ended Mutual Fund Schemes

Investors are free to invest or redeem their investments already  made from the scheme at any time. The investment and redemption happen based on the NAV that is declared on a Daily Basis by the Scheme based on the value of the Portfolio held by the Scheme.

Close Ended Mutual Fund Schemes

The Fund does not issue or redeem units on a periodic basis. Units can be bought only when the scheme is available for subscription during the initial offer period or New Fund Offer (NFO) period. Investor can redeem the amount invested only on the pre-determined maturity date declared by the scheme. These units are generally listed on a stock exchange and a person who wants to either invest or redeem in the scheme can do so by buying or selling the units on the stock exchange in which the scheme is listed. Unlike in a open ended scheme, where the price of purchase / redemption depends on the NAV, the price of purchase or redemption may not directly reflect the NAV and may be influenced by various market factors including demand and supply for the schemes units.

Interval Schemes

Interval Schemes are those schemes which combine the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

Categorization by Asset Class

The nature of the scheme is defined by the type of securities they invest in. The key asset classes are:

1. Equity Schemes
2. Debt Schemes
3. Hybrid Schemes

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A Mutual Fund (MF) is a vehicle to pool money from various investors with a promise that the money would be invested with a particular objective by professional fund managers.

As the word itself say “mutual” means many investors come together and contribute to form a common pool of money mutually which is invested according to the predetermined investment objective.

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