Fund company
WHAT ARE FUND COMPANIES
Most of us often invest money in different types of mutual funds or in units sold by unit trust companies or in other similar types of companies. Our motive behind such investments is to get profit in form of dividend etc . All the above companies are included in the category of fund companies . In simple words, it can be said that fund companies are those companies that obtain funds from public at large, invest them in different financial instruments like bonds, shares, debentures etc to generate profit and distribute the profits in form of dividends, bonus etc to its members . In present times, mutual fund companies have emerged as one of largest fund companies in the market . In the past few years, there are many people that have obtained up to 150% returns from fund companies, which is much more than the stock market or forex market returns. This is the reason why more and more number of people are now putting their money in fund companies .
VARIOUS ASPECTS
There are many aspects of fund companies that have to be understood before a person makes investment in any of these companies. First aspect is the money market fund . Most of fund companies have money market funds, which is basically a type of mutual fund . The difference between the mutual fund and the money market fund is that latter invests money in short term and high quality securities . The investment is made only in such securities that carry the minimal credit risk . The returns are provided to the members by means of dividend, which typically reflects the short-term rates prevalent in the fund market. One of most important features of money market fund is that there are no changed made in the Net Asset Value and these remain fixed e .g. $1 per share. In case of mutual funds, the NAV or the net asset value of the mutual fund is affected daily by changes in the market conditions and thus, value per share keeps on changing .
The choice of fund or fund company should be made as per the objective of putting funds. For example, if a person wishes to invest his fund in such a company that allow it to buy and sell shares any time along with the privilege to write checks against the shares, money market fund companies are one of best companies for making investment . Similarly, money market fund companies are best sources for all those persons that wish to use fund companies as the parking place for their investments. If a person wishes to keep funds for a comparatively longer time and does not requires to take out the funds back for quite some time, close ended mutual funds provided by various mutual fund companies are one of best sources . If a person thinks that he can require money at some future time, he can go for investing money in the open ended mutual funds.
Most of the mutual fund companies and money market fund companies provide tax exempt fund units to their investors. This means that a person is not required to pay any federal or central or state tax on the dividends provided by the fund company . Not all the fund companies provide tax free fund units . For example, if a person invests in the Treasury securities issued by the federal or central government or in commercial papers, certificates of deposits etc, he is required to pay tax on the benefits received by him.
There are many types of assets or instruments in which a typical fund company makes investment. The ratio of these investments vary from one country to another . For example, a typical mutual fund company that wishes to provide higher dividends to its members would generally invest 50-60% of its funds in stocks of different listed companies. The investment made in the money market funds would be from 18-25% . Remaining investments are made in hybrid and bond instruments . Thus, a fund company would always invest the money in a mix . It would never invest 100% of funds in stocks or money market funds . And this is the right strategy too to minimize the risk associated with different types of investments .
MAINTAINING THE NET ASSET VALUE
One of biggest challenges in front of any fund company is to maintain the NAV or the net asset value. If the fund is money market fund, its value would remain constant . If the fund is a mutual fund, the fund company shall make all its efforts to increase the NAV as much as possible . To ensure both of above, there are some steps that are taken by the fund company . First of all, fund companies tries to maintain the credit quality at all costs. This means they make investment in the instruments of those companies that have strong fundamentals . There are many international rating agencies that rate companies on the basis of different parameters and investing in instrument of all the top rated companies is always considered safe. The other step that is taken by the fund companies is to invest the funds in diversified sources. This allows them to lower the risk associated with such investments. This is the reason why a person would find diversified portfolio of fund companies rather than short one.
REGULATIONS AND GUIDEliNES
All the fund companies have to abide by various rules and regulations formed by the government. First of all, all fund companies are required to obtain a registration certificate from the appropriate office. There are of course some requirements that have to be completed before registration is applied. Once the certificate of registration is obtained, the fund company can easily apply for the registration of bye-laws if any, memorandum of association, articles of association etc. The directors of the company are required to produce an affidavit in the required form along with other necessary documents. These documents vary from one certificate of registration to another . Before the fund company is given the license to start the business, the registered office is also inspected for verifying the details provided .
Before the fund company is given the license to start the business, the registered office is also inspected for verifying the details provided .
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