Things to know before investing in Mutual Funds

Investing in mutual funds in India is a great idea as it is comparatively less riskier than investing in stocks. But still there are some problems with mutual funds such as, investment is the large variety of mutual funds schemes available in the Indian market, which makes it difficult to choose the one that most suits your needs. The biggest roadblock in mutual fund investing in particular is getting started.

As an investor there are few things that you should know to be a successful investor in mutual funds.


Age and Size of the Fund
The performance of the fund you plan to invest in can be figured out when you know the age and size of the fund. It may give some insight into the investment approach and the objective followed by the fund managers. You will know where the fund has been invested in? Does it abide to the objective set up? Similarly the size of the fund is also important, since it will indicate the effect that a single scrip or stock have on the NAV of the fund.


Fees and Expenses
The investor must be careful about the various expenses and fees imposed by the mutual funds. Make sure you buy a no load, low fee mutual fund. Any money you pay in fees is less money you'll make in returns.


Asset allocation
You wish to have 25 percent exposure to international stocks, then invest 25 percent of your money into international mutual funds. Try and experiment your risk among a variety of stocks, but keep in mind that pretty much any mutual fund will give you diversification into the asset base that it invests in.


Nature and Volatility
Any kind of investment includes risk and investing in mutual funds is no exception to this. Beware of any fund which claims to the contrary. The expected rate of return is proportional to the amount of risk. Check if the risk-return profile of the fund is aligned to the investment objectives of that particular fund. If you are an aggressive investor, equity based funds will be a good choice.


Tax Implications
Some funds trade more than others. As an investor you should know about the tax implications of your mutual fund investments very thoroughly. When does the investment become taxable, what is the amount of tax, and how is it to be paid? If you hold your mutual funds in an IRA or other tax deferred account, then tax efficiency is not an issue.

Scope of NCFM Certification

Clearing an NCFM Exam is a critical element of the financial sector reforms is the development of a pool of human resources having right skills and expertise in each segment of the industry to provide quality intermediation to market participants.

Once you pass the exam, you can make an entry into the stock market as a trainee. After gaining experience, one can get involved in four main fields involved with stock exchange proceedings depending on your interest
1. Jobber - These are the market's wholesale dealers who buy and sell stocks and shares in their own account to make a profit.
2. Dealer/Relationship Manager - Buys and sells securities to market makers on behalf of investors. They may also advise investors how to get the best out of their investments. Brokers give preference to the employees who have cleared the NCFM Exams.
3. Investment Analysts - Provide investors and stockbrokers with information to help them decide which securities to invest in. The work tends to fall into two categories, stock broking analysts and institutional analysts. It includes analyzing individual companies and look at broad sectors of the economy, making recommendations as to which sector or industry to invest in rather than which company. These analysts work for stock broking firms, institutional investors such as banks and pension funds etc.
4. The Stock Exchange - Itself as a central administrative and regulatory body, employs staff with these certifications.
Upon successful completion of all the modules and assignments, a National Certificate is awarded. After this course you can seek employment in stock broking companies, fund managing companies and banks. Today, it is essential to have these certifications to be associated with financial markets because of the regulatory compulsions and initiatives of the industry.


Comment below for more information on NCFM Exam Preparations.

So, what is a broker & What are stocks?

A broker is the person who handles transactions (mediates deals) for you when you are investing. The term can be used to describe the actual person that you are dealing with one on one or it can be used to describe a firm, such as India Bulls. (Some of you may remember the old commercial saying "my broker is Religare and he says"...)

Today you are probably more familiar with Religare, Prrsaar or India bulls, but if you watch any television or surf the internet, you certainly have seen ads for them, etc. Prior to the internet (in the stone-age) there were very few alternatives for the individual investor apart from dealing with a broker or getting your own license. You would be forced to deal with a broker whether the broker was a "full service" broker, meaning they would tell you what to invest in and would control your portfolio, or a "discount broker" who would charge less, but would only carry out your orders, not give recommendations or manage your account. 

Before you delve into the intricacies of the stock market, the first thing you should understand is what exactly a stock is. Stocks, which are also known as shares, are portions of companies that people can buy, and therefore own part of the company. But even though you may own a part of a company, only those who have invested a lot of money into the company have any real say in how the company is run.

There are two different types of shares: preferred (preference) shares and equity (common) shares. When you invest in equity shares, there is a greater risk of losing part or even all of the investment that you have put into the company should the company stop functioning. Why is this? Because creditors, bond holders and preferred shared holders in terms of being paid first, have a higher rank than the common shareholders, and because of this they will get the first chance to get some of the money they have put in if the company goes out of business.