Hello everyone welcoming you back to the Shine Gyan, Where knowledge can begin without End. Again we’ll be talking about related to Share Market. Today we’ll be talking about “Mutual Funds.” Suppose you haven’t read the Previous Article. Would you please read that? That will be very helpful to you if you want to enter on Share market whether you already entered the share market. Mutual Fund is also known as the bridge of the Secondary Market.
What is Mutual Funds?
“Mutual Funds” define the combined investment of the peoples. It is the process of collecting money from different people and applying or investing, or utilizing it appropriately. In foreign countries, They are controlled by AMC “Asset Management Company.” AMC means a company that manages the Assets. In Nepal, they are managed or controlled by “A” Class banks. “A” Class Banks are the AMC for the mutual funds in Nepal. On “A” Class bank, professional peoples analyze where to invest those funds. In Nepal’s case, investment is in the securities market. Likewise, Shares, Debentures, Fixed deposits, Government Bonds, etc. The professional peoples analyze to invest on different Sector. After the investment, they get profits, take a certain commission, and provide the profit and principle to the users who invested. You entered the primary market through IPO’s but want to enter the secondary market. On the secondary market, you have to invest more time in terms of the primary market. You have to check the current performance of the company, but you don’t time to analyze. This platform is a proper way to invest or entered the secondary market. You don’t have to give much time to analyze the company. You have to invest once in mutual funds, and you can back to your work. The whole process will manage by the AMC or The professional people of “A” Class banks. It fulfills the gap between the primary market and secondary market.
Type of Mutual Funds
It has two types of Mutual Funds: Open-Ended Mutual Fund & Closed Ended Mutual Funds. According to the context of Nepal Close Ended mutual funds is popular.
Close Ended Mutual Funds
- Funds have fix Maturity Date.
- It will list on NEPSE, Guided by SEBON with fix number of units. You can buy & Sell
- Capital 15% own, 85% public.
- Every Month Publishes the NAV Value.
Open-Ended Mutual Funds
- It will not list on Stock Market.
- No Fixed Maturity Date
- All buy/Sell Procedure are managed by AMC.
- Units issued can be increase as per demand.
Top 6 Reasons to Invest in Mutual Funds
Help to Beat inflation
It helps to beat inflation. Generally, the inflation rate of Nepal is greater than 10. When you save your money in the bank, you’ll get nearly 5% of interest. If you make a fixed deposit, you’ll get nearly 9%. Let me know what inflation is? Suppose you have 1 lakh rupees. If you go to the market for shopping the price of the goods in after 1 year is higher than the current days. You’ll not get the same good at the same price in 1 year, which you’re getting on current days. Maybe you have to pay more than 1 lakh to take the same goods after 1 year, around 1 lakh 10 thousand rupees. If you had deposited 1 lakh rupees on the bank, you’d get only 1 lakh 5 rupees in 1 year. You went to the market to buy the same goods after 1 year you’ll have only 1 lakh 5 thousand rupees, but the price is 1 lakh 10 thousand. You’ll not have enough money to buy the same goods. I recommend you to invest in Fixed Deposit or securities market or business. So it helps us to beat inflation. You’ll get a higher return than the inflation rate.
A professional management team manages them. It means they will decide where and how much money should invest. You don’t have to decide. Although you don’t know the share market, you must be sure your funds will be invested properly and try to return the good value.
No large Investment is required
While investing in it, a large investment is not required. If you have only NRs. 1000 you can invest in mutual funds. According to the context of Nepal, The minimum investment on it is 100 units worth only NRs. 1000. Suppose you want to buy the blue-chip company shares. Blue Chip company generates excellent reports from the long period and provides excellent returns from the long period of time to the investors. Suppose you won’t buy the shares of a blue-chip company that worth per unit is 5000 rupees, but you have only NRs. 1000. With the help of mutual funds, you can buy. It collects the money similar to people who have only NRs. 1000 and invest in Blue Chip Company. You can indirectly invest in Blue Chip Company. With less investment, you can invest in mutual funds.
Helps in managing diverse portfolio through small investment
The funds you invested in mutual funds which worth NRs. 1000 will not invest in a single sector. AMC invest those funds in Different sector. Maybe your NRs. 100 will invest in hydropower, microfinance, Banks, finance, etc., you can’t invest in different sectors with only NRs. 1000 but through mutual funds, you can invest in different sectors. You’ll have a diverse portfolio. It helps us to invest in different sectors and makes a diverse portfolio.
When the company issue the IPO’s. Before issuing to the public, the company will rid to Mutual funds around 5%. Every country has a different policy. The government also gives preference to mutual funds. At the same time, Nepal legislative board & SEBON implements the rules to the mutual funds in favor of the mutual funds. So it is safe and favorable by government policies.
Mutual Funds are liquidity. It means you can convert it into cash. You can buy & sell it like share.
Suppose you fell risk on the share market, low investment, lack of proper knowledge of share market,t or less time. A mutual fund is the best platform to invest in the secondary market.