Other Investment Tools

A. Mutual Funds

• • A mutual fund is a pool of money managed by a professional Fund Manager (known as Asset Management Companies or AMCs). It is also known as active investment since the fund manager actively trades in the market.
  • It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities.
  • They charge a fixed fee for this professional management which is known as the Total Expense Ratio (TER) (Generally 1-2% of the fund invested)
  • Net Asset Value or NAV represents the current market value of the mutual funds.

Advantages of Mutual Funds

• • These funds are professional managed.
  • Small investment can be made which increases retail participation or low-income group can also enter the equity market.
  • Risk diversification as a portfolio of shares, bonds and other market instruments are created.
  • Large choices of products based on investment needs and risk tolerance.
  • High liquidity as the investment can be redeemed easily.

B. Exchange Traded Fund (ETF)

• • It is similar to mutual fund, but it is traded on the stock market like a normal share
  • It tracks a standard index which means that a fund manager does not do active trading.
  • The changes in the securities prices are mirrored by the ETF.
  • It is also known as Passive investing.
  • Lower Expense Ratio.

C. Real Estate Investment Trusts (REITs)

• • Similar to mutual funds as they are also professionally managed.
  • But rather than investing money in stocks, RIETs invest money in physical real estate assets like commercial rent or residential rents.
  • Income generated from these investments are distributed to investors (or unit holders)

D. Infrastructure Investment Trusts (InvITs)

• • Similar to REITs, but the investment is made in infrastructural projects which can be income generating in terms of commission or toll collection.
  • Dual advantage – Pooling of private money for infrastructure development as well as return to investors.

E. Alternative Investment Fund (AIF)

• • It is a special investment category that differs from conventional investment instruments. It is a privately pooled fund. Generally, institutions and High Net-worth Individuals (HNIs) invest in AIFs as relatively large value of investments are required.