Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus “Mutual”, i.e. the fund belongs to all investors. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. A Mutual Fund is an investment tool that allows small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates Continue reading
Investment Options
Commodity Derivatives
In the last 25 years, derivatives have become increasingly important in the world of trading. Futures and Options are now traded actively on many exchanges. A derivative can be defined as a financial instrument whose value depends upon (or derives from) the value of other basic underlying variables. Very often, the variables underlying derivatives are the prices of traded assets. For example, a commodity option is a derivative whose value is dependent on the price of a stock. The underlying variable can be anything. Active trading is happening in credit derivatives, electricity derivatives, weather derivatives, insurance derivatives etc. many new types of interest rate, foreign exchange and equity derivative products have been created. A commodity derivatives market (or exchange) is, in simple terms, nothing more or less than a public market place where commodities are contracted for purchase or sale at an agreed price for delivery at a specified date. Continue reading
Features of Life Insurance Contract
Human life is an income generating asset. This asset can be lost through unexpected death or made non functional through sickness or disability caused by an accident. On the other hand there is a certainty that death will happen, but its timing is uncertain. Life insurance protects against loss. Life insurance contract may be defined as the contract, whereby the insurer in consideration of a premium undertakes to pay a certain sum of money either on the death of the insured or on the expiry of a fixed period. The definition of the life insurance contract is enlarged by Section 2(ii) of the Insurance Act 1938 by including annuity business. Since, the life insurance contract is not an indemnity contract; the undertaking on the part of the insurer is an absolute one to pay a definite sum on maturity of policy at the death or an amount in installment for Continue reading
Benefits or Advantages of Investing in Mutual Funds
Mutual fund is an investment vehicle that pools together funds from investors to purchase stocks, bonds or other securities. An investor can participate in the mutual fund by buying the units of the fund. Each unit is backed by a diversified pool of assets, where the funds have been invested. A closed-end fund has a fixed number of units outstanding. It is open for a specific period. During that period investors can buy it. The initial offer period is terminated at the end of the pre-determined period. The closed-end schemes are listed in the stock exchanges. The investor can trade the units in the stock markets just like other securities. The prices may be either quoted at a premium or discount. In the open-end schemes, units are sold and bought continuously. The investors can directly approach the fund managers to buy or sell the units. The price of the unit Continue reading
International Commodity Exchanges
Recent years have witnessed a steep rise in the creation of the commodity exchanges along with a consistent expansion of the existing ones. The United States, Japan, United Kingdom, Brazil, Australia, Singapore are homes to leading commodity futures exchanges in the world. Worlds Major Commodity Exchanges 1. The New York Mercantile Exchange (NYMEX) The New York Mercantile Exchange is the world’s biggest exchange for trading in physical commodity futures. It is the primary trading forum for energy products and precious metals. The Exchange has been in existence for 132 years and performs trades through two divisions, the NYMEX divisions, which deals in energy and platinum and the COMEX division which trades in all the other metals. A major contribution of the Exchange has been to develop and launch energy futures and options contract in 1978 to facilitate price transparency and risk management in this key market. Exchange has Continue reading
Convertible Issues – Explanation and Significance
A convertible issue is a bond or a share of preferred stock that can be converted at the option of the holder into common stock of the same company. Once converted into common stock, the stock cannot be exchanged again for bonds or preferred stock. Issue of convertible preference shares and convertible debentures are called convertible issues. The convertible preference shares and convertible debentures are converted into equity shares. The ratio of exchange between the convertible issues and the equity shares can be stated in terms of either a conversion price or a conversion ratio. Convertible Preference Shares: The preference shares which carry the right of conversion into equity shares within a specified period, are called convertible preference shares. The issue of convertible preference shares must be duly authorized by the articles of association of the company. Convertible Debentures: Convertible debentures provide an option to holders to convert them into Continue reading