Lux Investing
Mutual Fund?
(Q1) Everybody talks about investing money in Mutual Fund. suppose, you want to invest some money in Mutual Fund (CLOSE ENDED for 3 years say) (say in HDFC Tax saving Mutual Fund). How you will be paid your return after 3 years ? does the Mutual Fund company AUTOMATICALLY sends your profit(if any) by cheque to your home address ? who pays the return(profit) ? i am confused, how one will get the return(profit) ? (Q2) Now suppose, suppose, you want to invest some money in Mutual Fund (OPEN ENDED i.e you can withdraw money at any time...right ?) . now, say you want to discontinue after 3 Months. what you have to do ? i have read ...you have to "sell the Mutual Fund" ....but selling to whom ? how do i get the customer to sell? is it necessary to sell ? if i dont sell but want to withdraw what will happen ? very much confused. ------------------------------------------- can you please clarify my some more doubts ? which is better mode of investment ? (1)with dividend or without dividend ? (2)close ended or open ended ? -------------------------------------- i have also read a fact , that suppose you invested some mone to a MF fund company. but the MF company ruined and could not survive....thats means, you are not getting any profit...right ? your money is gone....correct ? well ok....but the most stunning fact and dangerous thing i have read is that you have to sell your furnitures,TVs,Computers and other household things to pay off the MF company . because , they say,...you too have the liability as the company ruins so you also ruin. is this fact true ?
Public Comments
- Mutual Fund is different from Stocks. In Mutual Funds , you have a fund company who is investing into market on your behalf. When you join a mutual fund, you are actually joining a fund company, like HDFC, Franklin Templeton, ABN-AMRO etc. You are alloted Units against the amount you pay them as per that days NAV (Net Asset Value). When you want to discontinue you write to that fund company and they will credit the amount to your account (through ECS) or send the cheque amount to you. In between if you opted for Dividend option you also get dividends credited to your account as and when fund company gives dividend. Hence you are either joining or withdrawing from a fund company. You are noy buying or selling anything. Open Ended Fund means you can discontinue anytime, but generally the Fund House charge an Exit Load if you withdraw the money before six months or a year. Hope this clarifies your doubt. If you still have doubts you can contact me.
- You have received an answer about open ended funds. I will add a little information about closed end funds. They trade like stocks. The concept of a closed end fund is similar to that of an open ended fund but with this difference. with a closed end fund, only a fixed amount of shares are issued. The money is then invested in the stock market on behalf of those who purchased the shares. Closed end funds do not trade at net asset value. They trade at whatever people are willing to pay for the shares. Many trade at a discount to net assets. Some trade at a premium. There is one other difference. Some closed end funds issue preferred stock as a means of leverage. Normally, closed end funds that invest in bonds. There is a site that has a listing of all closed end funds. Below is the link.
