Tuesday, 25 October 2011

Shares and Mutual Funds-6

Greetings to fellow blog readers......

Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.
Earning per share (EPS): It is a financial ratio that gives the information regarding earing available to each equity share. It is very important financial ratio for assessing the state of market price of share. The EPS statement is applicable to the enterprise whose equity shares are listed in stock exchange.

Types of EPS:

1.            Basic EPS ( with normal shares)
2.            Diluted EPS (with normal shares and convertible shares)

EPS Statement                    :          

Sales                                                       ****
Less: variable cost                                 ****
                                           Contribution      ****
Less: Fixed cost                                          ****
                                                EBIT             *****
Less: Interest                                              *****
                                               EBT           ****
Less:  Tax                                                 ****   
                                        Earnings           ****
 Less: preference dividend                    ****
Earnings available to equity
Share holders (A)                                      *****
EPS=A/ No of outstanding Shares
EBIT and Operating Income are same
The higher the EPS, the better is the performance of the company.

Cash Flow Statement: It is a statement which shows inflows (receipts) and outflows (payments) of cash and its equivalents in an enterprise during a specified period of time. According to the revised accounting standard 3, an enterprise prepares a cash flow statement and should present it for each period for which financial statements are presented.

Funds Flow Statement: Fund means the net working capital. Funds flow statement is a statement which lists first all the sources of funds and then all the applications of funds that have taken place in a business enterprise during the particular period of time for which the statement has been prepared. The statement finally shows the net increase or net decrease in the working capital that has taken place over the period of time.
Float: The difference between the available balance and the ledger balance is referred to as the float.
Collection Float: The amount of cheque deposited by the firm in the bank but not cleared.
Payment Float: The amount of cheques issued by the firm but not paid for by the bank.
Operating Cycle: The operating cycle of a firm begins with the acquisition of raw material and ends with the collection of receivables.

1 comment:

  1. What is share and What is mutual fund? To have a better knowledge on investment, you must know what is difference between shares and mutual funds. Both these financial terms have their own benefits and risks.


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