There are several advantages mutual funds have over stocks. The key advantage funds have over stocks is diversification. Any fund normally invests in a diverse basket of securities, which may include stocks. Consider, one of the market favourites, Birla Advanatge Fund, a growth scheme with 26.43% of its portfolio in Infosys, 14.75% in VisualSoft and another 8.22% in SSI. With an investment of Rs.50,000 in the scheme you could own Rs.13,215 worth of Infosys, Rs.7375 of VisualSoft and Rs.4110 of SSI. Likewise you would own 27 other stocks that the scheme has put its money in.

Hmmm, is that more satisfying than purchasing seven stocks of Infosys on your own with the same money. Hence, funds make it possible for individual investors to achieve more diversification and with less of their effort than compared to investing in individual stocks. Funds are also professionally managed and backed by an investment research team. The team looks at the performance of companies and then makes investments in them to achieve the objectives of the scheme.

Compared to investing in stocks, your experience with fund investing will show you that you save a lot of paperwork as well as time. Under normal functioning, fund investment also does away with common problems associated with stocks like bad deliveries, delayed payments and the frequent visits to brokers and companies.

Historically equity did give better returns than bonds, golds and other assets. But if the long term horizon is assumed to be 7 years, then in the Indian context, the equities have practically given near zero returns.

Beside investing in Government of India securities and money market instruments, they are slightly more overweighed on corporate India. Approximately 50-60% of the portfolio would consist of fixed income instruments issued by corporate India. They therefore provide a higher return typically between 11-12% per annum. Ideally suited for investors looking beyond a period of 1 year.

The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).

MIP is a variant of income scheme that provides investors an option to get monthly returns in the form of dividends. UTI is the only fund house giving out assured returns on MIP (distributed as post-dated cheques). Private sector mutual funds are not allowed to give assured returns on MIPs. Usually, the returns from such schemes are between 10.5 -11.5%

Balanced schemes invest both in equity shares and in income-bearing instruments. They aim to reduce the risks of investing in stocks by having a stake in both the equity and the debt markets. These schemes adopt some flexibility in changing the asset composition between equity and debt. The fund managers exploit market conditions to buy the best class of assets at each point in time. By mixing stocks and bonds (and sometimes other types of assets as well, like call money or commercial paper), a balanced scheme is likely to give a return somewhere in between those of stocks and bonds. Bonds add stability during market downturns and volatile periods, while stocks provide growth. Since the return on different types of assets rise and fall at different times, the risk is usually lower in balanced schemes than in pure growth or income schemes

The part of mutual fund assets that gets removed each year for expenses (which includes management fees, annual operating costs, administrative expenses and all other costs incurred by the fund) expressed as a percentage is the expense ratio. It provides a quick check of efficiently the fund manager is handling the fund.

Look for one thing in the fine print: the scheme's expenses. One such expense is the bomb of a salary paid to the investment experts who manage the fund. Apart from management fee there is also the money the fund spends on advertising and marketing a scheme. There is a host of operating expenses from buying stationery to maintaining the fund house's staff.

It does. In whatever way the fund spends the money, the net expenses are all billed in one way or the other to the unitholder. The expenses of a scheme does not include brokerage commissions.

NAV is the net realizable value of each unit of the scheme. After netting off liabilities from the asset value and dividing by the total number of units outstanding we arrive at the NAV.

o, you may not actually get that much when you redeem your units. That is because of the charges levied by some mutual funds. Though NAV is a good enough figure to tell you what the price of each unit is, it is not an exact one. Funds charge fee for managing your money called the annual expense fee. Some funds also charge a fee when you buy or sell units called the entry and exit load.

In India majority of mutual funds are open-ended. Fund that float open ended schemes can sell as many units as investors demand. These do not have a fixed maturity period. Investors can buy or sell units at NAV-related prices from and to the mutual fund on any business day. Most people prefer open-ended mutual funds because they offer liquidity. Such funds can issue and redeem units any time during the life of a scheme. Hence, unit capital of open ended funds can fluctuate on a daily basis.

These have fixed maturity periods (ranging from 2 to 15 years). You can invest in the scheme at the time of the initial issue. That's because such schemes can not issue new units except in case of bonus or rights issue.

All is not lost if you missed out on units of a closed scheme. After the initial issue, you can buy or sell units of the scheme on the stock exchanges where they are listed (certain Mutual Funds however, in order to provide investors with an exit route on a periodic basis do repurchase units at NAV related prices). The market price of the units could vary from the NAV of the scheme due to demand and supply factors, investors' expectations and other market factors.