Mutual Funds (MF) are a great way to invest.The current scene,however, might not be very easy on the MF industry yet for long term investment these are an ideal option. Before investing any one would want to know how mutual funds work. Now, if you ask this from a finance professional, mostly, you’ll get answers that raise even more doubts because the clarifications are full of financial jargon In simple words, you will be more confused than before.Investors who have little clue about mutual fund will always tell you that they are full of risk and will discourage you from investing. However, having said that, I do feel that before plugging in your money you need to watch out for a few points.

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MUTUAL FUNDS FOR A CAUTIOUS
INVESTOR
(a focus article on Mutual Fund Investment)
Why mutual funds?
They fit to the style of every investor and its easy to
understand how they work
Why is the study of mutual funds important?
A good knowledge of mutual funds will make you a better
investor. However, every investment carries certain
risks but a good knowledge can give higher returns and
help you exit at the right time.

2. Quick tips to
Mutual Fund
Investing!
Mutual Fund
Investing
Mutual Funds remain one
of the best investment
options and are a great
way to invest. They play
an important role in
household finances, most
notably in retirement
planning. However, like
any other investment,
mutual fund investment
needs a careful study.
This slideshow will focus
on what types of mutual
funds are in the market
as per risk and return,
how should you select
them and what are the
factors to consider.
© 2013 Deena Zaidi. All rights reserved.

3. WHAT ARE MUTUAL FUNDS?
What are Mutual
Funds and how do
they work?
Mutual funds are a collection of stocks or funds
managed by a fund manager who has a wide experience
in the investment sector. Mutual Funds are
professionally managed collective investment vehicle
that pools money from many investors to purchase
securities. These securities are from different
industries, which vary widely, ranging from all
sectors. Wrong selection of mutual funds can cause a
great damage to the portfolio ,therefore, before
plugging in your money you need to watch out for few
points.
© 2013 Deena Zaidi. All rights reserved.

4. MUTUAL FUND TYPES
Mutual funds are divided into three categories
primarily:
 Open Ended Funds: can be surrendered any time and is
the most liquid.
 Closed- ended Funds: These are for a fixed duration
and cannot be surrendered before due date
To chose whether we need open ended fund or closed ended funds
is an important decision. Ignorance of what type of fund suits
us can lead to our money being locked away for as long as 10
years in case of close ended funds.
© 2013 Deena Zaidi. All rights reserved.

5.  Most close ended funds yield lower returns than
open ended ones and that is one pointer to
watch out for.
 Money is illiquid incase of close ended funds.
 70% of all of these products use leverage as a
way to produce more gains. Using borrowed money
to invest may produce big returns, but it could
also put the fund under intense pressure.
 Open-end products may represent a safer choice
than closed-end funds, but the closed-end
products might produce a better return
IMPORTANT POINTERS
© 2013 Deena Zaidi. All rights reserved.

6. © 2013 Deena Zaidi. All rights reserved.
Mutual Fund Shopping-Factors to
consider
Identification of your needs
Identifying financial needs is a
very important part of financial
planning. This depends on your
budget, duration, savings and
your willingness to invest and
the level of risk you are ready
to take in that investment
Expense Ratio
The cost of owning a fund is
called expense ratio. This is NOT
the entry/exit fee(which does not
exist now).It includes the
investment advisory fee, the
administrative costs,
distribution fees, and other
operating expenses
Consistency of fund
performance
Selected funds should have a
proven consistent performance and
should not be just based on the
previous year’s returns. Its a
good idea to check the funds
previously handled by the fund
manager.
Fund Diversification
Since Mutual funds are subject to
market risks, diversification of
investment money in different
kinds of mutual funds can help in
lowering risks and maximizing
returns.

7. Higher
Return
Higher Risk
Money Market Funds
Bond Funds
Balanced Funds
Conservative Funds
Aggressive Growth
BALANCING RISK AND
RETURN
For each of your financial
goals, determine your
risk-tolerance level, your
expected returns, and your
investment constraints.
Understand where you are
currently at in your
investment program and
determine which key
principles of investing
will help you reach your
financial goals.
© 2013 Deena Zaidi. All rights reserved.

8. What is your investment style?
© 2013 Deena Zaidi. All rights reserved.
 Money market: These are like treasury bills or certificate
of Deposit. Very low risk and hence, a very low return.
These are short term debt obligations. Personally, I would
park my money in a bank fixed deposit rather than a money
market instrument ,but then, as I said, it all depends at
what you are looking at.
 Fixed-Income Funds: These funds are invested in government
and corporate debt. It provides steady returns but higher
than the money market funds. These are mostly close ended
funds and money has a lock in period of more than one year
depending on which mutual fund it is. These funds are not
entirely risk free but one needs to know where the
particular mutual fund is investing the money in. The risk
on a certain mutual fund depends on that.

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 Equity Funds: These are high on risk because they
invest in stocks. This is by far the largest category
and is further divided on the basis of size (market
capitalization) and investment style of companies that
these funds are invested in. Market capitalization
relates to the size of the companies (micro cap, small
cap, mid cap and large cap). Investment style means
value, blend or growth. Growth funds invest in stocks
of fast-paced companies. Value funds seek to invest in
stocks that are cheaply priced. Blend funds are not
biased toward either growth or value. The fund
manager’s past performance (if any) also plays an
important role in choosing which equity fund to invest
in. It is always advisable to chose companies that are
neither value nor growth stocks that are somewhere in
the middle.
What is your investment style?

10. © 2013 Deena Zaidi. All rights reserved.
 Balanced Funds: These are a mix of both equity funds
and fixed income funds. These ensure safety and value
of the capital invested. Usually, coming with a 60%
equity and 40% debt ,these funds are similar to asset
allocation funds. One thing to remember is that the
fund manager can always switch the ratios as per the
market or when he feels he needs to.
 Index Funds: These funds are power packed and move
along with the exchange. If you doubt the fund
manager’s performance then this fund is for you since
it is entirely base on the performance of the market
and not what the fund manager chooses for you.
What is your investment style?

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© 2013 Deena Zaidi. All rights reserved.