While determining to invest in mutual funds, it is very important to gain a good knowledge of them. One of the factors on which your journey of mutual fund investment depends on is that how many company stocks can your mutual fund scheme invest in. When you buy mutual funds online it is very important to read carefully about the scheme and know everything about it. Here is a brief discussion about this important factor for those who are willing to invest in some mutual fund scheme.
Although, there is no hard and fast rule maintained for the number of stocks to be handled by a mutual fund scheme, there are so many factors that influence this procedure. There are a few main factors which can decide the number of company stocks a mutual fund can invest. The two factors are-
- The rules followed by the mutual fund scheme
- The objective followed by the mutual fund scheme
- Risk tolerance
- The rules followed by the mutual fund scheme-
Every mutual fund scheme comes with a prospectus with many rules and regulations that they need to follow. Every portfolio manager has to be clear with the rules made by the scheme and buy and sell the stocks according to them. The mutual fund schemes have mentioned how much percent of the company’s stock they can buy and only that much a manager can do. It is not possible to go against the rules and regulations of the scheme management as they can result in penalties and extra charges. In case if your mutual fund scheme does not have a predetermined set of rules for the number of stocks to invest then the manager has to take the lead and follow the protocol according to his own experience and history of the scheme. This can be a risky matter so the portfolio manager should be very careful in making this decision.
- The objective followed by the mutual fund scheme-
Every mutual fund scheme has an objective and that determines how much stocks you can invest in. There are many different objectives a mutual fund scheme can have. The objective can be an aggressive growth of funds, in that case, the scheme will invest in the kind of stocks of the companies who are growing at a higher pace. In case the objective of the scheme is to invest for income, higher-income stocks will be more appreciated. Another possible objective of a mutual fund scheme can be the risk profile of the mutual fund scheme. In that case, the scheme may not invest in the higher percentage of stocks in a portfolio in order to reduce the risk of low returns. If the mutual fund scheme is able to take higher risks than it may invest in the higher percentage of stocks of the companies with a good growth and can easily gain more and more profit.
This is another factor on which the number of stocks to be invested by a mutual fund scheme depends. This factor is very easy to understand as every mutual fund scheme has a different level of risk tolerance and the number of stocks, as well as the type of stocks that a scheme invests in, are dependent upon it. It is up to you that how much you want to risk and then you can choose the right scheme for yourself. There are many schemes available in the market who focus mainly on lowering the risk of the investment and they come under the risk tolerance mutual fund schemes. You can easily choose the one for yourself.