Every investor wants to maximize his/her returns from
investments. In the current situation, when the markets
are recovering from the global financial crisis, investors
are skeptical about investing in the common investment avenues,
i.e., shares, bonds, derivatives, bullion, mutual funds, etc., since
these avenues have generally failed to live up to the investors'
expectations during the crisis period. In this situation, it needs to be
mentioned that losses made in the case of Systematic Investment Plans
(SIPs) have been much less that in the case of other avenues.
Before understanding what an SIP is, one must know about Mutual
Funds (MFs). An MF is a professionally managed collective
investment scheme, which collects money from many investors and invests
in stocks, bonds, short-term money market instruments and/or
other instruments. The MF primarily aims to minimize risk
and maximize profits. MFs are managed by professional fund
managers, who are also known as portfolio managers.
Thus, an MF is a trust, which collects the savings of
small/retail investors and then invests the same in capital/secondary
market instruments. Profits realized or earned on these investments
are shared by all unit holders in proportion to the number of units
owned by them. This kind of investment instrument can be considered as
a savings avenue for the small/retail investors since it is managed
by professional fund managers.
MFs in India are regulated by the guidelines of the
Securities Exchange Board of India (SEBI). An investor subscribing to a MF
is issued units of the MF scheme depending on the amount of
his investment and the Net Asset Value (NAV) of the scheme. NAV
is assets minus liabilities of the MF divided by the number of
units outstanding. |
