Mutual Funds

FUNDS

MUTUAL

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities.

TYPE OF

SCHEMES Different type of schemes are available in the market broadly, they can be classified as: EQUITY SCHEMES : In this scheme money is invested in the equity. Sector funds are type of equity schemes in this scheme money is invested in identified sectors. DEBT SCHEMES : In this scheme money is invested in debt .According to the nature of debt , scheme can be further classified as glit and liquid or diversified debt fund . BALANCED SCHEMES : Here money is invested in mix of debt or equity.

RISK qNo Guarantees: No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money q

qManagement risk: When you invest in a mutual fund, you depend on the fund's 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.

BENEFIT

TAX

qSince, April 1, 2003, all dividends, declared by debt-oriented mutual funds (i.e. mutual funds with less than 50% of assets in equities), are tax-free in the hands of the investor. NO ESCAPE FROM TAX EVEN AFTER REINVESTMENT

qIf your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made.

LIQUIDITY The investment in Mutual Fund is highly liquid but it may not satisfy the degree of liquidity.

Small Savings scheme

• • Small savings schemes are offered to investors who are willing to invest small amounts of money for varied period of times. • • These schemes are usually offered by government backed organizations, and are designed to provide safe and attractive investment options . • • Investment options available for SSS . 

-Public Provident Fund

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-Employees' Provident Fund - National Savings Certificate

-Kisan

-National Savings Scheme, 1992

-Relief

Vikas Patra Bonds

Characteristic s • • • • • • • • • • • • • • •

Safety for your invested money Government Backing Small Investor Friendly Tax benefits Liquidity Risk free investment Nomination facility

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Risk in Investing

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- You may be charged for pre-mature withdrawal of your invested money .

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- All schemes do not offer transfer from one office/city to other .

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- It is not easy to get the money from government offices, even after maturity of your investments . • 

Tax Benefits

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- For people with high taxable incomes, the tax benefits offered by these schemes are very attractive. - Maximum limit for the Tax benefits is 1 lakh pa . - Most of the schemes are exempted under 80C of Income Tax Act

. Liquidity 

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Access to your investments is very easy , Most of the schemes provide for premature withdrawals .

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A few of the schemes also offer loans based on the investment made .

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INSURANCE MEANING : Insurance is a contractual arrangement whereby one party agrees to compensate another for losses in return for the payment of a consideration. The party agreeing to pay for the losses is insurer. And the party whose loss is compensated is insured. For claiming the insurance the insured have make payment to the insurer which is called as premium. How insurance works? Insurance works on the concept of sharing. In very simple words insurance is a pooling arrangement whereby contribution are collected from all members who join the pool the amount collected is used to utilized to compensate the members who suffer from loss.

BENEFIT

TAX

qFrom 2005 – 06 Investment up to 1 lack in life insurance is exempt or we can say that the amount of insurance is deducted from the taxable income. qIn case of health insurance plan an amount up to Rs 10000 of premium paid was eligible for deduction from the taxable income. qEarlier individuals with taxable income in excess of Rs 5 lacks where not eligible for any tax relief but from 2005 – 06 they are also benefited with deduction of Rs 1 lack.

RISK qThere is no risk involve in investment in insurance, claim will be pain whenever it appears . qThe risk lies in the return on investment i.e. bonus received from the insurer the bonus may fluctuate as it depends on where the investment is made by the insurer. It is not as safe as investment in banks.

LIQUIDITY Liquidity is less or we can say that there is no liquidity in in insurance.

TRANSFERABILITY The investment can be transferred to the nominees or to the legal hairs depending on the situation.

Company Fixed Deposit

• The concept of company fixed deposits was started in india in 1964 by Bajaj Capital Ltd. • • Company Fixed Deposit is the deposit placed by investors with companies for a fixed term carrying a prescribed rate of interest. • • Fixed Deposits in companies earn a fixed rate of return over a period of time . • • It basically grew out of the need of Corporate Sector for raising short term finance and requirements of small investors to earn superior returns as compared to returns offered by the Banks.

Characteristics

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Assured returns Premature encashments Non transferable Nomination facility

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• Less Risk • • Safest option for short term investment  

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Tax benefits • 

• No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year . • • No other tax benefits . 

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Liquidity

• Liquidity is very high in Company deposits . • • Investor can easily withdraw his deposits whenever he wants , in that case companies are authorized to deduct some money from deposits • • Company deposits are also use as a guarantee in case of bank loans . • •