Growth Funds

Growth funds are those mutual funds that aim to achieve capital appreciation by investing in growth stocks. They focus on those companies, which are experiencing significant earnings or revenue growth, rather than companies that pay out dividends.

Growth funds tend to look for the fastest-growing companies in the market. Growth managers are willing to take more risk and pay a premium for their stocks in an effort to build a portfolio of companies with above-average earnings momentum or price appreciation.

In general, growth funds are more volatile than other types of funds, rising more than other funds in bull markets and falling more in bear markets. Only aggressive investors, or those with enough time to make up for short-term market losses, should buy these funds.

Balanced Fund

Balanced fund is also known as hybrid fund. It is a type of mutual fund that buys a combination of common stock, preferred stock, bonds, and short-term bonds, to provide both income and capital appreciation while avoiding excessive risk.

Balanced funds provide investor with an option of single mutual fund that combines both growth and income objectives, by investing in both stocks (for growth) and bonds (for income). Such diversified holdings ensure that these funds will manage downturns in the stock market without too much of a loss. But on the flip side, balanced funds will usually increase less than an all-stock fund during a bull market.

Equity Mutual Funds

Equity mutual funds are also known as stock mutual funds. Equity mutual funds invest pooled amounts of money in the stocks of public companies.Stocks represent part ownership, or equity, in companies, and the aim of stock ownership is to see the value of the companies increase over time. Stocks are often categorized by their market capitalization (or caps), and can be classified in three basic sizes: small, medium, and large. Many mutual funds invest primarily in companies of one of these sizes and are thus classified as large-cap, mid-cap or small-cap funds.

Equity fund managers employ different styles of stock picking when they make investment decisions for their portfolios. Some fund managers use a value approach to stocks, searching for stocks that are undervalued when compared to other, similar companies. Another approach to picking is to look primarily at growth, trying to find stocks that are growing faster than their competitors, or the market as a whole. Some managers buy both kinds of stocks, building a portfolio of both growth and value stocks.

Mid Cap Funds

Mid cap funds are those mutual funds, which invest in small / medium sized companies. As there is no standard definition classifying companies as small or medium, each mutual fund has its own classification for small and medium sized companies. Generally, companies with a market capitalization of up to Rs 500 crore are classified as small. Those companies that have a market capitalization between Rs 500 crore and Rs 1,000 crore are classified as medium sized.

Big investors like mutual funds and Foreign Institutional Investors are increasingly investing in mid caps nowadays because the price of large caps has increased substantially. Small / mid sized companies tend to be under researched thus they present an opportunity to invest in a company that is yet to be identified by the market. Such companies offer higher growth potential going forward and therefore an opportunity to benefit from higher than average valuations.

But mid cap funds are very volatile and tend to fall like a pack of cards in bad times. So, caution should be exercised while investing in mid cap mutual funds.

Large Cap Funds

Large cap funds are those mutual funds, which seek capital appreciation by investing primarily in stocks of large blue chip companies with above-average prospects for earnings growth.

Different mutual funds have different criteria for classifying companies as large cap. Generally, companies with a market capitalisation in excess of Rs 1000 crore are known large cap companies. Investing in large caps is a lower risk-lower return proposition (vis-à-vis mid cap stocks), because such companies are usually widely researched and information is widely available.

Open End Mutual Fund

An open-end mutual fund is a fund that does not have a set number of shares. It continues to sell shares to investors and will buy back shares when investors wish to sell. Units are bought and sold at their current net asset value.

Open-end funds keep some portion of their assets in short-term and money market securities to provide available funds for redemptions. A large portion of most open mutual funds is invested in highly liquid securities, which enables the fund to raise money by selling securities at prices very close to those used for valuations.

Closed-End Mutual Funds

A closed-end mutual fund has a set number of shares issued to the public through an initial public offering. These funds have a stipulated maturity period generally ranging from 3 to 15 years.The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed.

Once underwritten, closed-end funds trade on stock exchanges like stocks or bonds. The market price of closed-end funds is determined by supply and demand and not by net-asset value (NAV), as is the case in open-end funds. Usually closed mutual funds trade at discounts to their underlying asset value.

Closed-End Mutual Funds

A closed-end mutual fund has a set number of shares issued to the public through an initial public offering. These funds have a stipulated maturity period generally ranging from 3 to 15 years.The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed.

Once underwritten, closed-end funds trade on stock exchanges like stocks or bonds. The market price of closed-end funds is determined by supply and demand and not by net-asset value (NAV), as is the case in open-end funds. Usually closed mutual funds trade at discounts to their underlying asset value.

Mutual Funds in India

Mutual Fund is an instrument of investing money. Nowadays, bank rates have fallen down and are generally below the inflation rate. Therefore, keeping large amounts of money in bank is not a wise option, as in real terms the value of money decreases over a period of time.

One of the options is to invest the money in stock market. But a common investor is not informed and competent enough to understand the intricacies of stock market. This is where mutual funds come to the rescue.

A mutual fund is a group of investors operating through a fund manager to purchase a diverse portfolio of stocks or bonds. Mutual funds are highly cost efficient and very easy to invest in. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. Also, one doesn't have to figure out which stocks or bonds to buy. But the biggest advantage of mutual funds is diversification.

Diversification means spreading out money across many different types of investments. When one investment is down another might be up. Diversification of investment holdings reduces the risk tremendously.

On the basis of their structure and objective, mutual funds can be classified into following major types:

• Closed-end funds
• Open-end funds
• Large cap funds
• Mid-cap funds
• Equity funds
• Balanced funds
• Growth funds
• No load funds
• Exchange traded funds
• Value funds
• Money market funds
• International mutual funds
• Regional mutual funds
• Sector funds
• Index funds
• Fund of funds

Endowment Plan

ENDOWMENT PLAN

This is a kind of life insurance plan. The premium paid for an Endowment Plan is partly used to secure insurance for the life of the person, and partly used as investment for generating returns. Due to this, the premium for Endowment Plans is significantly higher than that of a Term Plan for the same amount of sum insured.

Since this is an insurance plus investment type of plan, an amount equal to the sum insured plus the accumulated bonuses (earned out of the investments made using part of the premium) is paid to the insured person if he survives the tenure of the policy. If the insured person expires during the tenure of the policy, the sum insured plus the accumulated bonuses is paid to the nominee.

Unit Linked Insurance Plan (ULIP)

ULIP

It is the acronym or short form for Unit Linked Insurance Plan. This is a kind of life insurance plan.

The premium paid for a ULIP is partly used to secure insurance for the life of the person, and partly used as investment for generating returns. Due to this, the premium for ULIP is significantly higher than that for a Term Plan for the same amount of sum insured.

Since this is an insurance plus investment type of plan, an amount equal to the sum insured plus the accumulated bonuses (earned out of the investments made using part of the premium) is paid to the insured person if he survives the tenure of the policy. If the insured person expires during the tenure of the policy, the sum insured plus the accumulated bonuses is paid to the nominee.

Difference between ULIP and Endowment Plan:

In an Endowment Plan, the insurance company has the full freedom to make the decision about where to invest the money. Also, this process is not very transparent.

As opposed to this, in a ULIP, an investor can choose where his money would be invested (through growth, balanced, conservative, etc options). This results in more control and transparency.

Thus, a ULIP is like a combination of insurance and a mutual fund.

Mutual Funds

Mutual Funds In India are financial instruments. These funds are collective investments which gather money from different investors to invest in stocks, short-term money market financial instruments, bonds and other securities and distribute the proceeds as dividends. The Mutual Funds in India are handled by Fund Managers, also referred as the portfolio managers. The Securities Exchange Board of India regulates the Mutual Funds In India. The share value of the Mutual Funds in India is known as net asset value per share (NAV). The NAV is calculated on the total amount of the Mutual Funds in India, by dividing it with the number of shares issued and outstanding shares on daily basis.

Mutual Funds In India - Advantages

• The Mutual Funds in India offer flexibility by means of dividend reinvestment, systematic investment plans and systematic withdrawal plans.
• These funds are available in small units, so they are affordable to the small investors.
• The fees charged for to the custodial, brokerage and others services are very low in case of Mutual Funds in India.
• These funds have the option of redeeming or withdrawing money at any point of time.
• The Mutual Funds in India have low risk as it is managed professionally.

Like most developed and developing countries the mutual fund cult has been catching on in India. The important reasons for this interesting occurrence are:

• Mutual funds make it easy and less costly for investors to satisfy their need for capital growth, income and/or income preservation.
• Mutual fund brings the benefits of diversification and money management to the individual investor, providing an opportunity for financial success that was once available only to a select few.

Introduction

Understanding Mutual funds is easy as it's such a straightforward concept. A mutual fund is a company that pools the money of many investors, its shareholders to invest in a variety of different securities.
Investments may be in stocks, bonds, money market securities or some combination of these. Those securities are professionally & efficiently managed on behalf of the shareholders, and each investor holds a pro rata share of the portfolio -- entitled to any profits when the securities are sold, but subject to any losses in value as well. 
For the individual investor, mutual funds propose the benefit of having someone else manage your investments and diversify your money over many different securities that may not be available or affordable to you otherwise. Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds. 

A mutual fund, by its very nature, is diversified -- its assets are invested in many different securities. Beyond that, there are many different types of mutual funds with different objectives and levels of growth potential, furthering your odds to diversify. 

A good explaination can be done through the below diagram ;)

First Step towards Financial Planning

I am pleased to write my First Blog for Financial Planning. I am very much excited to learn something new other than Science & Technology. It isn't that i am bored of Science, just felt like maintaining a blog for Finance will help other people who are eager to know about Financial Planning. It isn't that i am an Expert in this Field but i feel that you should write each and every topic you learn so that you can recollect it easily. Or Even if i get a good article i will not have to search for it again. All cool Financial Planning Stuff will be within my mouse click. For the past two years i have been writing Technical Blogs, now for a change or you can say for my good i have created this Blog related to Finance. Through this blog i would like to learn and share all the Financial knowledge which i have gathered till now.

Warning:

All suggestions written in this blog are not intented for People who don't use their brains and blindly follow what ever is written. So dont be a Cry Baby and use all Tips at your own Risk. Enjoy ur Trip towards Financial Planning.