Mutual funds manage our money - almost everyone knows about this. However, most often, some of the other functions related to investing are forgotten. These are also taken over by asset management companies, making life very simple for investors. Click on the
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The English translation is as under:
“If I have Rs. 100 to
invest, how much money should I invest in mutual funds and how much in stocks?” Recently, someone asked this question.
This is an oft-repeated question, asked in various forums and in
many different ways. Some ask as a simple question as mentioned above. Some
frame their questions using technical terminology as: “How much should I allocate to mutual funds out of a total fund of Rs.
100?”
What is the correct answer in such cases? Should you allocate 30% to
mutual funds? Or does it depend on a person’s situation? Or risk profile? Or
age?
The person asking such questions has probably not understood what
mutual funds really are and is considering mutual funds as just another product
– a substitute of stocks, for example.
Are mutual funds really another option for investing in stocks? It
is important, hence, to understand what mutual funds are and how these are
different from the traditional investment avenues.
A mutual fund is not an investment by itself, but outsourcing the
investment management and administration function to a professional
organization. Instead of investing in various instruments ourselves, we can
outsource that job to a professional organization.
Within a mutual fund company, there are people that take care of some
very important functions:
·
Fund management team: This team handles
functions related to management of funds, which involve securities research, decisions
regarding buying and selling of securities, execution of trades through
brokers, and other paper work related to the same.
·
Fund accounting team: This team manages
the accounting function related to the investors’ money invested in the scheme.
·
Registrar and transfer agency: This team
is the record keeper of investor data and transactions. This team also
maintains the records of unit balance in each of the investment folio. It also
takes care of issuance of account statements, as well as dividends and various
investor transactions in the folio.
·
Custodian: This is an outside agency and
not part of the mutual fund company. They keep custody of the securities and
settle trades with the clearing house of the stock exchanges, where the trade
takes place. It is a security feature that the custodian is never part of the
asset management company.
In other words, you get much more than just a portfolio manager by
investing through a mutual fund. And, yes, just to reiterate, you also
outsource the function of finding relevant and suitable investment avenues to
professionals.
So, let us come back to the question asked in the beginning, “If I have Rs. 100 to invest, how much money
should I invest in mutual funds and how much in stocks?”
The answer is, “You can invest
all your money through mutual funds”. There are various different kinds of
mutual fund schemes to cater to various requirements of investors. There are
various conveniences built into these. You take your pick. Identify your need
and go take the advantage of mutual funds.
- Amit Trivedi
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