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What Does Mutual Fund Mean?

An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money mangers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Why do people use mutual funds?

Mutual Funds have emerged as a favorite investment vehicle as it has many advantages over other forms and avenues of investing, particularly for the investor who has limited resources available in terms of capital and ability to carry out detailed research and market monitoring.

Portfolio Diversification

Investment in a mutual fund enables investors to hold a diversified investment portfolio, which would otherwise require big capital.

Professional Management

The investment management skills, along with the research into available investment options, ensure a much better return than what an investor can manage on his own.

Reduction in transaction costs

Mutual funds are excellent for the new investors because you can invest small amounts of money and you can invest at regular intervals with no trading costs. Stock investing, however, carries high transaction fees making it difficult for the small investor to make money. By pooling investors' monies together, mutual fund companies can take advantage of economies of scale. With large sums of money to invest, they often trade commission-free, a benefit passed on to investors.

Reduction/Diversification of risk

An investor in a mutual fund acquires a diversified portfolio no matter how small his investment. Diversification reduces risk of loss as compared to investing directly in shares or debentures where all the risk of potential loss is the individual investor’s.

Liquidity

An investor in a mutual fund can liquidate the investment by selling the units to the fund if it is an open-ended fund, or by selling the units in the stock market if the fund is close-ended.

Convenience and flexibility

Mutual fund management companies offer investor services that a direct market investor cannot get. Within the same fund family, investors can easily transfer/switch their holdings from one scheme to another. They can also invest/withdraw their money at regular intervals in most open-ended schemes. Investors can buy and sell their units through the internet or email or other communication means. They also get updated market information from the funds.

Safety

Mutual funds industry is well regulated; all funds are registered with SEBI, which lays down rules to protect the investors.

It is extremely important that every person, especially the breadwinner, covers the risks to his life, so that his family's quality of life does not undergo any drastic change in case of an unfortunate eventuality. Insurance should go hand in hand with investment needs. What if your investment plans are wrecked by an unfortunate accident that impairs your ability to earn or worse that results in your death? Who would provide for your family and how would marriages, education, etc in the family be met? The only choice is to insure adequately. More important, keep monitoring the insurance plans and see they are in sync with your planned goals in terms of regular and event-based needs.

Benefits of Life Insurance are :

Replacement of income

Life Insurance provides a lump sum or periodic payments to help replace the income stream, in case of an unfortunate event or an untimely demise of the breadwinner.

Lifestyle

Life insurance products can help you build a corpus to protect and maintain your lifestyle against fluctuations in your future income.

Cost of education

You need to support your child with a sound educational background, to help your child achieve his/her dreams. Life insurance products can help you fulfill these needs, whether you are there or not.

Retirement expenses

Retirement is an age when an individual has fulfilled almost all his responsibilities and looks forward to relaxing. Life insurance products can help you lead a secure and tension free retired life by ensuring that you get guaranteed pension.

Mortgage and debt protection

With increasing consumerism and ever-rising demands, loans and debts are now part of life. Life Insurance Products help you ensure that your family is not unduly burdened with their repayments, in case of an unfortunate event or an untimely demise of the breadwinner.

Hardships protection

Life insurance provides a sense of security to the income earner and to his/her family. Buying life insurance frees the individual from various unnecessary financial burden that can otherwise make one spend sleepless nights.

Life insurance v/s other investments

Life insurance allows long term savings to be made in a relatively painless manner because of the low and convenient investments made through premiums. Moreover, it encourages 'forced thrift' which means the insured is made to pay premiums and save money, which he/she may not do in the regular course of life.

If you require loan, say for building a house, it can be easily obtained against a life insurance policy. Amongst the most known benefits of Life Insurance is the savings on your income taxes.

What is a Bond?

A bond is debt instrument that a government or a company issues to raise money. Basically it is a contract between a government or a company—who is acting as the borrower—and investors like you—who are acting as the lender.

When you buy a bond, you are lending money to the government or company that issued the bond, and in return, the government or company that issued the bond is agreeing to pay your money back, with interest, at some point in the future.

Think of it this way. When you buy a house, a bank creates a contract—a mortgage in this case—wherein the bank lends you money and you agree to pay the bank back, with interest, at some point in the future. Well, with a bond, you are like the bank, the government or company is like the home buyer and the bond is like the mortgage contract.

Characteristics of a Bond

When most people envision a bond, they picture a certificate that states how much the bond is worth, the interest rate that will be paid out on the bond and the date on which the bond will mature, and they are exactly right.

Let’s take a look at the following characteristics of a bond:

  • Face value is the amount the bond will be worth at maturity and the amount the bond issuer uses when calculating interest payments.
  • Coupon rate is the interest rate the bond issuer will pay on the face value of the bond.
  • Coupon dates are the dates on which the bond issuer will make interest payments.
  • Maturity date is the date on which the bond will mature and the bond issuer will pay the bond holder the face value of the bond.
  • Issue price is the price at which the bond issuer originally sells the bonds.

Buying and Selling Bonds

Many investors mistakenly believe that once you buy a buy a bond you have to hold onto it until it matures. That is simply not the case.

You can buy and sell bonds on the open market just like you buy and sell stocks. In fact, the bond market is much larger than the stock market.

Here are a few terms you should be familiar with though when buying and selling bonds:

  • Market price is the price at which the bond trades on the secondary market.
  • Selling at a premium is the term used to describe a bond with a market price that is higher than its face value.
  • Selling at a discount is the term used to describe a bond with a market price that is lower than its face value.

What is a fixed deposit?

A fixed deposit account allows you to deposit your money for a set period of time, thereby earning you a higher rate of interest in return. Fixed deposits also give you a higher rate of interest than a savings bank account.

Who can apply for a fixed deposit account?

Individuals and organizations with the intention of retaining their savings for a fixed period for some future use.

What are the benefits of a Fixed Deposit?

The option to withdraw the deposit at any time before maturity without any difficulty You can avail loans upto 85% of the principal Variable deposit periods ranging from 6 months to 120 months.

What is the minimum amount I can deposit?

The minimum deposit amount is Rs. 1,000/- Deposits can be made in multiples of Rs. 100/-. While all efforts have been made to update the information, constituents are requested to contact the office for latest details.

Public Provident Fund (PPF) has, over the last number of years, been one of the best investment options. And rightly so too.

It offers

  • High & assured returns,
  • 100% guaranteed by the Govt. of India,
  • Tax rebate while investing, and
  • Last but not the least, the returns are tax-free.

This budget has, however, brought in a very significant change in the way an assessee can claim tax benefits arising out of the savings in certain specified instruments including PPF.

Post Office has long served as the backbone of communication and small deposits. For more than 150 years the department of Posts has played a pivotal role in facilitating communication throughout the nation thereby aiding in socio-economic development of the country.

Post Offices offer varied services. Their work is not just restricted to delivering mails. They accept deposits, provide retail services like sale of forms, bill collection etc, provide savings schemes(PSS), life insurance cover etc.

With a network of more than 1.5 lakh post offices across the country, India Post offers various Post Office Saving Schemes. These are risk free investment options that are safe and secured and provide you with capital gains without Tax Deduction at Source (No TDS).

These savings schemes come at attractive rates with nomination facility and are transferable to any Post Office across India. Let us have a quick glance at various post office savings schemes.

  • Post Office One Time Deposit Scheme ?In this scheme the interest is calculated quarterly but it is paid to you annually.
  • Post Office Monthly Income Scheme (MIS) ?This is quite an apt scheme for retired employees/ senior citizens and for those who need regular monthly income.
  • Public Provident Fund (PPF) Scheme ?This PPF Scheme serves to be the most sought after and beneficial investment option for both salaried as well as self employed classes
  • Senior Citizen’s Savings Schemes
  • National Savings Certificate (NSC) ?These certificates come with duration of 5 years and 10 years.
  • Post Office Savings Account
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