Demystifying Mutual Funds

Why “Mutual Funds: A Powerful Investment Avenue for Individuals” is the book to demystify mutual fund products and shed new light on them. Authored by award winning writer and financial expert RK Mohapatra, this is your one-stop guide on how to invest, which instruments to invest in and where to get started. Coming on the backdrop of the Ministry of Corporate Affairs - Investor’s Awareness Programme, this is a leg up for general fiscal education. The book was launched at the World Book Fair 2020 in New Delhi

“You can’t change the inherent risk of an investment product and the trend of the capital market, but you can always change your portfolios in order to reach your destination.” And so begins this simple but meticulous guide on the concept of mutual funds, their structure, regulation, types, risk and returns along with the benefit of direct investment of mutual funds and taxations. Spread over 182 pages and six chapters, the work offers a holistic view of wealth creation and elaborate practical advice with an in-depth analytical study of the subject of equity and equity-related securities, including the National Pension System (NPS).

Mutual Funds: An Introduction

A mutual fund scheme is an investment vehicle, which is managed by a trust, and accumulates money from investors for a particular fund scheme, with a promise that the pooled money would be invested specifically as per the regulations of the Securities and Exchange Board of India (SEBI) by professional managers who are expected to honour the promise.

Thus, every mutual fund has an objective, investment portfolio, statement of profit and loss and assets and liabilities (Balance sheet). The SEBI regulates the expenditure (management fee & other expenses) which is to be charged to a scheme/ fund in order to calculate the fair value of the NAV. Any capital gain and losses from such investments by the mutual fund 14 scheme are passed on to the investment in the proportion of the numbers of units held by mutual fund unit holders.

Mutual funds are the best option till date, to invest for long-term goals as they have several advantages in comparison to other investment products. They are highly liquid, plus the investor can recover his/her money within three days from the date of redemption. Mutual fund investments enable diversification into different asset classes. They are less risky than equity, given that fund units are professionally managed. Further, they operate with greater transparency and user-friendly because of their online presence. In addition, mutual fund investments are tax-efficient, involve lower costs and offer consistency return over long-run.

The first mutual fund was launched in India by UTI in 1964. At present, more than 44 mutual fund companies (AMC) have launched thousands of funds in India. Each mutual fund is a separate company.

Mutual funds are the best option till date to invest for long-term goals as they have several advantages in comparison to other investment products

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The book focuses on the individual, small-time investor and enables him/her to fulfil their financial goals at the right time and in the right place by investing their hard-earned money in the right mutual fund products. Apart from educating you on the benefit of investing in various types of mutual funds it also looks at the future growth prospects of mutual funds in India.

The information is on point and elaborate. For instance, it details the secret of investment in various types of equity mutual funds: From Large cap funds, Mid cap funds, Small cap funds, Hybrid funds, multi cap funds to debt mutual funds: fixed maturity plans, interval funds, and liquid funds, extensively even as it helps you understand the risk and returns of other class of assets in comparison to mutual funds.

Given his expertise, Mohapatra delves into popular ratios such as “Standard Deviation (SD), Beta, Sharp ratio, Treynor ratio, Alpha and Information ratio (IR),” to measure risks in mutual funds. This book is full of work-examples along with the relevant formulas, visual aids: figures, tables, charts, and graphs, which not only democratises the subject but makes it more comfortable for readers to make a meaningful decision about mutual fund investment. To that end, the jargon is simplified for the reader's understanding. In the author's own words: “This book contains hidden secret and magic formula of compounding, which ought to make things easier for those who don’t have the time to analyse and invest their hard earned money in the equity, and equity-related securities. With this goal in mind, each and every chapter tells a micro concept about investing in mutual funds. The simple and illustrative writing style is fascinating-it helps the reader realise the importance of each and every paise in a very realistic and non-preachy manner.

Considering that this generation lives in a world of no pension, Mohapatra's stress on self discipline and willpower as the key qualities of a good investor, is very helpful. "Self-discipline is a process that requires perseverance and willpower. Whereas willpower is the strength and ability to carry out certain tasks and self-discipline is the ability to perform the assigned task regularly. There is a similarity between the two as willpower is like the branches of a tree, whereas self discipline is the tree that controls all branches,” explains Mohapatra. “An investor must be well disciplined; otherwise, he/she will lose money due to wrong decisions, such as selling stocks and shares and mutual funds haphazardly due to the volatility of a market. The decision to not invest in the bear market also reflects that the investor is not well disciplined and as he/she is not investing regularly as per the defined/targeted goals. Those who invest irrespective of market trends will achieve their goals in due time. Start investing at the age of 25, a very small amount say Rs.2500/- per month in equity mutual fund for your retirement, after 35 years you will accumulate Rs.1.62 cores with an annual return of 12 %, which is sufficient to generate Rs.1.01 lakhs per month (7.75% interest in the bank FDR), for your living expenses post-retirement.”

It is precisely this explanation accompanied by examples that makes for a compelling read.

An investor must be well-disciplined; otherwise, he/she will lose money due to wrong decisions such as selling stocks and shares and mutual funds haphazardly

The Author At A Glance

R K Mohapatra is a renowned Indian author in the field of non-fiction self help books across the world, best known for his work on financial planning and retirement planning for individuals. His other award winning works include Retirement Planning: A simple guide for Individuals and Investment Risk & Growth: A Guide for Investors about Investment vehicles. He was honoured with the “IRCON Managing Director” award in the year 1999-2000 for his exemplary work. Armed with an MBA/Finance, his work bespeaks 27 years’ experience in the field of finance in India and abroad. He is also working as General Manager of Finance at the Ircon International Ltd.