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Mutual funds- What it is good to invest in mutual funds?

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What is Mutual Fund?

mutual funds meaning -Nepal

What is a mutual fund? let’s discuss the meaning of mutual funds with a simple example. Every month when our income is credited then we keep some part of that income in a saving account.  

 

We  keep some money as savings for our  later use maybe for future expenses, for other uses such as to buy a new house, Car, for an emergency, study 

and so on.

 

 

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 So what are the ways to save our money-? one simple way is that we keep our income in the bank and it gets collected. But it is not an effective way to save our money because

such money loses its value.

 

 

Due to the increase in the inflation rate, the price of commodities also increase. But the value of our money keeps decreasing every year by a certain percentage according to changes in the inflation rate.

 

For this reason, people invest their money. There are different places or sectors to invest our money. Such as FD(Fixed Deposit), Share Market, Government bonds, Real estate, etc.

 

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Every Investment has return, risk, and time. Return means how much percent of profit are you earning through investment. Return is normally seen in percentage.

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If you have put your money in investment then your profit percentage should be more than the inflation rate. Risk means how-

risky it is to invest, what is the chance of losing all of our money in that investment. What is the chance of going in loss after investing there?

 

And time means how long are you investing. So, the basic rule is, if the time is more, the risk is more, there will be the chance of more return.

 

 

mutual funds -nepal

mutual fund is an investment security type that pools money from many investors and

it invests in the stock/share Market, Fixed deposit, government bonds, real estate, etc.

.In the case of a foreign country

AMC (Asset Management Company) manages this fund but  in the case of Nepal

-A class bank is treated as AMC.

 

 

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There are professional fund managers or people in AMC, they invest our collected funds and provide us return on the basis of fund type and profit after reducing operating charge and commission. The main

areas of investment of Nepalese mutual funds are the Stock market/share market, Government bonds,

FD(Fixed Deposit), Debentures, and so on. AMC invests a pooled fund of capital on behalf of its investors.

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There are a lot of Advantages of mutual funds. We can easily enter the primary share market through 

IPO(initial public offering). But to enter into the secondary market is a little bit risky in comparison to

the primary market. We need to collect more information about the share market, learn about fundamental and 

technical analysis, market trends, company’s history, time management and so much knowledge related to the share market. Therefore mutual funds can be the best option of investment to those who do not have enough knowledge about the secondary market and those who want to enter in the secondary market with low investment. AMC manages our fund so there is not required to do more analysis about the company, the market so this is also appropriate for those who do not have enough time.

 

 

 

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inflation-nimlm

Mutual funds help us to beat inflation. Let’s learn how it helps us to beat inflation. Generally, we save our income/salary in a Saving account, It provides security to our money but it is not an effective idea to save money in a saving account because it reduces our value of money every year.

 

 

 

If you wanna take a little bit of risk or more profit then you need to enter into an investment or business. If we save our money in the bank(saving account) it provides few  interest rates that will never beat inflation(Inflation can be defined as the persistent rise in the general price level across the economy
overtime).

 

 

In the case of Nepal, there is <5% interest for the saving accounts and <9% interest rate for FD(fixed deposit). And inflation rate of Nepal, in general, will be more than the interest rate of the savings account. Therefore when we compare the interest rate of the Bank and the inflation rate then inflation will be more. Because of this reason, the value of our money declines every year.There is the chance to earn profit more than inflation rate in mutual funds, so it helps to beat inflation.

 

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 The team of AMC is professional, experienced people, therefore they manage our funds and always try to invest in better sectors. So, in less time, less knowledge, the low investment we can enter into the secondary market.

 

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Types of Mutual   Funds:

There is two type of mutual funds:

-Open-ended mutual fund

-Close-ended mutual fund

 

A brief discussion on the type of mutual funds:

The price of an open-ended mutual fund is determined on the basis of NAV(Net value assets). We can find the

value of NAV when we reduce Liability from assets and divide it by a number of shares.

NAV=Assets-Liability/Number of share

 

The close-ended mutual fund is listed in Nepse and it has a fixed maturity period. As well as it is traded in both primary and secondary markets. We can apply a minimum of 100 kitta or unit shares for a mutual funds in Nepal. And in the case of maximum, we can apply for the whole kitta/share.

 

 

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The price per share is Rs 10. We can follow

the same procedure to apply

share as like other’s companies’ IPO. After being listed in Nepse

the share of a mutual fund is

traded in the secondary market. The price is determined by demand and supply.NAV of a close-ended mutual fund is published last of every month. After reducing the operating charge AMC provides a return to the investor according to NAV or maturity period. If you have invested in

a mutual fund you can sell in secondary market or hold until the maturity period. The maturity period in

general for close-ended mutual funds is 5-10 yrs in Nepal.

 

 

Conclusion:

In this article, we have written about mutual funds based in the Nepalese Share market. The information

provided on our website is for general information purpose only.if you have any questions,comments, please write them down in the comment section.

 

 

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