Best investment policies at lowest premiums.
Top performing investment plans, better than mutual funds
Plans with zero commissions
and lowest charges in the market.
tax-free returns
Benefits for 80C, 10(10D) and no LTCG.

Mutual Funds

Mutual fund is a kind of financial vehicle that enables investors to park their money in a range of assets and securities, like equities, debts, money market instruments and liquid assets. Professional fund managers are tasked with the responsibility of managing mutual funds. They allocate the fund's assets and strive to generate capital gains or income for the investors of the fund. Since money is pooled from different investors toward a fund, therefore the rewards, profits, risks and losses are also shared among them, according to the extent of their investment.

The Securities Exchange Board of India (SEBI) sets out the policies and regulates the MFs to safeguard the interest of the investors. All mutual funds have to be registered with the regulator before they are launched. Investors, prior to investing, must ensure the fund is compliant with the guidelines set by SEBI.

Mutual funds are ideal for investors who either do not want to invest large sums, or don’t have the inclination nor the time to study the market, but still want their wealth to grow. The money collected is invested by professional fund managers, in accordance with the stated objective of the MF scheme. The fund house will levy a fee, which is deducted from the investment. The fees charged are regulated and subject to the limits specified by SEBI.

Mutual funds differ on the basis of a number of parameters, such as market caps, risks, etc. While large-caps invest in assets and securities over the long-term, they offer healthy returns against market risks. They are best-suited for long-term investors with low risk appetites. In case of mid-caps, money is put into assets of a comparatively shorter term, offering comparatively higher returns. This risk associated with these investments is not as low as large-caps. Small-caps offer the highest returns at the highest risk, and therefore, are best-fit for investors with a high-risk appetite.

Features of Mutual Funds

The features of mutual funds are as under:

Diversification

They are a great tool to achieve diversification of investments. By investing in mutual funds, where the money is parked in different asset classes, like equity, debt, etc. the investor can spread risks. Diversification is the ideal means to risk mitigation and allows the portfolio to perform better.

Professional Management

They are managed by professional fund managers, who are considered experts in their field. Fund managers run an analysis on the value of the stock, the invested company product and its current & future market position, past performance of the stock etc. They are also responsible for investing in stocks which are in sync with the fund’s strategy and goals of the investor. Fund houses or Fund managers have access to resources that are above and beyond the reach of the individual or retail investor.

Flexibility

They offer flexibility through systematic withdrawal plans, dividend reinvestment and systematic investment plans. Given that these funds can be availed in small units, they are quite affordable for small MF investors. The fees associated with MFs are very low as well. These funds provide the option to redeem or withdraw money at any point of time.

Liquidity

They are more or less seen as liquid investments, unless there is a pre-specified lock-in period. Investors are generally permitted to take their money out without any hassles. Money market funds give you the opportunity to have your money invested for as short a duration as a day. However, do look out for the fees associated with the selling of the funds.

Affordability

They provide the option of investing through Systematic Investment Plans, where investors can park a sum as low as Rs. 500 every month. This makes it quite affordable, even for the individuals of the low-income group.

Transparency

They are transparent about the various fees charged as well as the portfolio holdings. Investors can view the underlying securities (bonds, stocks, cash, or a mix of them) that the portfolio holds. All of the information is made available in the mutual fund prospectus, which can easily be found on the company's website.

Tax exemption

They are considered to be more tax efficient than other types of financial instruments available in the market. ELSS, which is a specific class of funds, are exempt from taxation under section 80C of Income Tax Act 1961 for a limit of INR 1.5 lakhs. The following are the advantages of ELSS:

  • Substitute route to invest in the stock market
  • Only 3-year lock-in period
  • A tax benefit of up to INR 1.5 lakh
  • Best returns over a longer period of time

Choice of Investment

Another big advantage is that they come in different types, suiting the needs of wider requirements of various kinds of investors. Depending upon your financial goals, you can choose to invest in the appropriate category of mutual funds available.

  • Liquid Funds: If you want to only invest your money for a short term, then you can invest in liquid funds.

  • Short Term Funds: If you don't want to give a commitment towards your investment for a short period which is something like 1 to 3 years, then short-term funds will serve the purpose for you.

  • ELSS Tax Saving Funds: For all your tax saving needs, ELSS scheme in funds will be an ideal selection for you.

  • Long-Term Funds: For investors who are willing to keep their money invested in the long term, for them, equity funds are the best selection.

Benefits of Investing in a Mutual Fund

The benefits of investing in mutual funds are as under:

Easy to Understand

Mutual funds are simple to understand. They are an ideal option for investors who may not know much about investing. An AMC will pool investments from individuals and institutional investors with common investment objectives. A professional fund manager will manage the pooled money by investing in capital assets to generate maximum returns for the investors.

Easy to Buy

Thanks to online technology today, buying, managing, selling funds has become a hassle-free convenient task for investors. You can just log in to the fund house website and purchase funds by following simple steps of instructions. Through online mode, you can also manage your investment by getting updates on the performance of your fund on a daily basis. Net Asset Value (NAV) gives you a simple understanding of how your fund is performing.

Different Categories

Asset management companies offer different kinds of mutual funds to meet investors’ diverse risk appetites. Some of the popular mutual funds in the market include equity funds, debt funds, income funds, money market funds, index funds, balanced funds, speciality funds and fund of funds.

Low Expense

Mutual funds have money from many investors clubbed together in one fund. This way the asset management cost gets divided amongst all the investors and there is no burden felt by the investors for the asset management cost. For example – If you buy something in bulk, then you get a discount and the price works out cheaper than a single product. The same applies to stocks - if you buy just one, the transaction fees works out more expensive in comparison to the stock than if you buy multiple stocks in one shot. Help to make the transaction on a larger scale ensuring the transaction charges don’t have much effect on the income.

Risk diversification

Portfolio should diversify its assets in multiple shares and stocks across market caps and sectors to maintain a balance and avert unnecessary capital market risks. This will ensure that when a fund under performs, there will be other funds in the portfolio that will not only keep your investments safe but also enable growth.

Types of Mutual Funds in India

Top Performing Mutual Funds in India

Mirae Asset Hybrid Equity FundL&T Emerging Businesses Fund
Axis Bluechip FundHDFC Small Cap Fund
ICICI Prudential Bluechip FundICICI Prudential Equity & Debt Fund
L&T Midcap FundMotilal Oswal Multicap 35 Fund
HDFC Mid-Cap Opportunities FundKotak Standard Multicap Fund

Source: The Economic Times

Mutual Fund Investment Objective

Income Funds

For investors looking for a fund that generates a reliable source of income,income fundsis a smart choice. These funds invest in government securities, corporate bonds, fixed deposits of companies, debentures, etc., which are less risky than equity funds, though not completely devoid of risks. Such funds are accompanied by lower risk of market fluctuations, and inflationary influences, both of which decide on the prices of shares and bonds. Returns might not be as high as that of equity funds, but they serve as an effective investment option for investors planning a stable income as their post-retirement plan or individuals planning to supplement their income.

Growth Funds

If you are looking for capital appreciation in medium to long term period, growth funds aka equity funds are ideal for you. These funds carry a high amount of risk as the money gets invested in equity shares of companies across sizes- large, medium and small, including start-ups. The primary objective of investing in growth funds is to achieve growth, as apparent from the name. Since they are a high-risk investment, they generate healthy returns and are best suited for investors with a high-risk appetite. However, the returns are not paid as dividends to investors, but re-invested in varied companies across market caps for further growth.

Aggressive Growth Funds

This category aims to achieve high capital growth among growth stocks, that is, stocks of organizations that are estimated to grow at a rate that is comparatively higher than that of the average stock market.

Money Market Funds

Mutual funds that invest in highly liquid money market financial instruments like treasury bills, commercial papers, certificate of deposits, etc. are referred to asmoney market funds. As the investment tenure starts from a short duration of 15 days, it is the best for those looking for an investment option for a limited period. Not just that, these also enable high liquidity.

Balanced Funds

Also known as hybrid fund, balanced fund are best suited for medium and long-term investors with a medium risk appetite. Such invest in a mix of risky investment like equity funds, and investment instruments of moderate risks like debt funds to introduce balance in the portfolio to avert capital market risks as much as possible. It aims at ensuring growth, while offering a reliable and stable source of income.

Mutual Fund Fees & Structure

There are certain charges that investors will have to incur when investing in mutual funds. Asset management companies charge investors for professional fund management as well as regular operational expenses. Returns are taxable by the government. The investor also has to pay for transaction charges plus the cost incurred towards maintaining the fund. Some riskier funds can involve higher management fees levied on them.

Expense Ratio

This is the annual fee that an investor will be charged for the management of funds. The operating fees usually varies between 1% and 3% and is chargeable at an annual percentage for the effective management of mutual funds. Also referred to as the management fee, along with the advisory fee charged by your agent/broker (if any), is called the expense ratio. Additionally, there are also front-end charges applicable on the purchase of shares and back-end charges involved after selling shares. However, there are also some no-load mutual funds that are available without any sales charges or commission. In such a case, bank or fund houses assign these funds directly to investors without involving secondary parties. There are also some funds that attract fees and penalties on early withdrawal.

Overall Understanding of Mutual Funds

Fund managers invest the money collected from different investors in a wide range of bonds, shares, investment capitals and equities. The investors will receive individual portfolios consisting of the shares, bonds and equities that they have invested in. This portfolio is managed by professional fund managers, keeping in mind the current capital market scenario, financial objectives of investors and several other parameters. As a result, every shareholder takes part indirectly in the profits and losses made by the mutual funds that he/she had invested in.

The performance of all the mutual fund investments in the portfolio of an investor is evaluated on the basis of the capital market fluctuations. This implies that the total cap of the fund is generally defined by the overall performance of the fund. The units of a fund can be redeemed or bought as per the existing NAV (Net Asset Value). The total market value of each of the securities in the portfolio is divided by the total outstanding shares to calculate the NAV.

The performance of the securities determines the value of the company in which an investor has invested in. A majority of the funds contribute to several securities. Hence, investors can make the most of the benefit of diversification, and that too, at a significantly low cost.

When an investor has invested in a particular stock of only one company before the same company experienced a bad quarter, it will expose the investor to risks of losing his/her invested amount. This is because he/she had invested solely in that company. However, if the investor had invested only in a small part of the total shares and assets of the company, he/she would have lost only a certain part of the total investments.

How to Invest in Mutual Funds?

Financial institutions offer investors the convenience and flexibility of investing in mutual funds online and offline. Investors can select from either of these options as per their preference. However, before deciding on the route for investing in mutual funds, there are certain essential parameters that one needs to evaluate to take a well-informed investment. Here are the important factors every investor needs to assess:

Analyse your investment objective

Have a clear idea of why you want to build a corpus. Is it because of your child’s higher education and marriage? Are you planning to supplement your own current qualifications with another educational course? Are you saving for your retirement or planning a life insurance cover or keeping yourself financially prepared for emergencies? Your aim need not be restricted to one or a combination of these factors. It might be something else. Keep the motive in mind while selecting a suitable investment for yourself.

Assess your risk appetite

Every investment is not designed to meet the capital market risks that every investor would like to take. Some funds like equity funds are customized for those with a high appetite, while debt and money market instruments are for investors with a low risk appetite. Usually short-term fund investments are accompanied by greater risks, but, at the same time, they offer higher returns. On the other hand, mid-term investments are exposed to comparatively lesser risks and returns, while long term investments involve even lesser risks and lower returns as well. Carefully think over your risk appetite to understand the type of mutual funds you should invest in.

Conduct a thorough research

The wide array of mutual funds investments may confuse you initially. However, after you have a clear picture of your financial objectives and risk appetite, you would be able to strike off from the list, several options that are not suitable for you. Now, undertake a thorough research of the mutual fund options that meet your unique requirements, carefully noting their individual features and benefits. Next, compare the features and performances of each of these funds. Now that you have a few suitable funds in mind, you can decide on whether you would like to opt for the online or the offline method of purchasing mutual funds.

Agents for the offline method

You can buy mutual funds through agents/brokers who are experts in fund investments. They recommend investment options best suited for your unique investment needs and offer end-to-end solutions right from application to repurchase, current performance tracking, redemption, cancellation, transfer of units, etc. The agent/broker will get his commission from the fund house on your purchase. They might also receive a percentage of your portfolio value that is created by them as commission.

Direct online purchase

An increasing number of fund houses have started offering their funds through their official website and mobile applications. If you are well-aware of how investments work, you can take your decisions independently without the guidance of a professional.

  • Website: All you need to do is download the relevant form for your chosen fund investment from the official portal, fill it up with accurate details and then submit it online along with the required document proofs. What’s more, you get to avoid paying over and above your fund cost as brokerage charges.

  • Mobile app: While website offers the convenience of making your fund investments from the comforts of your home without the hassle of visiting banks and non-banking financial institutions, mobile apps take flexibility a leap ahead by making investments possible while on the move! Travelling on business or leisure? Worry not! All you need is a smartphone and Wi-Fi connection for making uninterrupted fund investments, and that too, without additional brokerage charges.

How do Mutual Funds Work?

Mutual fund companies purchase plenty of stocks or bonds, according to the recommendations of the professional advisor. A third-party firm or individual, known as a fund manager, manages the funds portfolio of investors. Fund managers may either belong to third-party firms or be the owners of funds. The board of directors of a mutual fund company hires a fund manager who has the necessary skills and industry knowledge to assign and manage the investments, aiming at optimum growth and returns for the investors of their funds. There are also other expert professionals, each of them specialized with a distinct skill set to manage various aspects of fund investments like tracking fund performances and identifying the right time for selling the assets for greater returns.Some fund managers are the owners of these funds, while some others are not.Fund managers collect the investment amount from investors and invest the same on their behalf in various funds, as per their individual financial objectives and risk appetites, to build a robust portfolio.

Direct Vs. Regular Mutual Funds

Mutual funds can be broadly classified into two categories – Direct Fund and Regular Fund. They will both be managed by the same fund manager. However, there are certain differences between them. Let’s discuss these differences below:

  • Direct mutual funds: These funds do not involve charges as commission to the agent/broker, payable by fund investors. Also, thee funds offer higher NAVs.

  • Regular mutual funds: These funds involve commissions payable to the broker/agent over the fund investment amount. This implies that these charges cut into the returns of the investor, thus, offering lower NAVs.

Investment Strategies in Mutual Funds

  • Option for SIP: Systematic Investment Plan (SIP), offered for every investment, enables investors to invest in their chosen fund easily through monthly instalments, easing the financial burden of investors.

  • Diversification of investment: Switching to other funds is necessary when a fund is on its downward peak. This diversification enables the investor to avoid losses arising from the negative performance of the fund that was in his/her portfolio earlier. Investing in a healthy combination of risky funds like equity and less risky options like balanced funds balances out the portfolio, avoiding risks and helping in capital growth.

  • Asset Class Investing: Investing in mutual funds based on its eight asset classes - equity funds, debt funds, money market funds, balanced funds, fund of funds, sector funds, index funds and ELSS tax-saving funds.
  • Periodic Overview: Mutual funds are constantly vulnerable to market risks, which can be predictable as well as unexpected. While unforeseen risks cannot be averted, the predictable market risks can be avoided by keeping a close track of the performances of the funds in the portfolio and then sell or switch between funds.
  • Direct Plans: These funds are directly purchased the fund house that owns it, generally through its official website or mobile app. Hence, they do not involve any additional charges and expenses like brokerage fees.

Mutual Funds Drawback & Their Solutions

Here are the cons of mutual funds and how you can overcome them:

Lack of reliable returns

Investments are vulnerable to capital market risks, that is, the risk of depreciating value due to market volatility. This is especially true for high risk mutual funds like equity funds. Such funds are not supported by an insurance scheme, making them susceptible to market risks. The returns on these funds can be extreme, achieving high growth during stable market conditions and experiencing erosion during fluctuations.

Unnecessary risks to investments can be avoided by investing in diversified funds that are accompanied by low risk. You can also switch from high-risk funds to low risk ones like balanced funds during unstable market conditions. Further, you can also invest in a combination of asset classes like equity, debt, money market, gold to introduce a balance in the fund portfolio. In that case, while some high-risk funds are not performing that well during challenging market situations, other low risk funds will safeguard you against major losses. MF investors who lack the knowledge and skill of managing risks should take the expert assistance of professionals.

Non-withdrawable cash

Every fund investment has a withdrawal limit, beyond which investors cannot withdraw or invest further. While fund investments offer the advantage of liquidity of cash, the static cash or the cash that cannot be withdrawn partially, defeats the purpose of possessing it.

The static cash prevents investors from reinvesting them and exploring more avenues of generating further returns. The effective solution to this con of fund investment is to invest wisely as per your unique investment objectives and risk appetite to enjoy the growth and returns that you are looking for.

Additional fees

Fees are extra charges that investors have to pay over and above their invested amount at the time of making fund investments.The fee structure varies between investments. This implies that such charges are applicable irrespective of the future growth or depreciation on investments. Hence, the additional fees eat into the profit margin generated and even on the losses made by investors, thus, increasing the extent of the loss.

It is essential for investors to evaluate, compare and analyse the fee structures of different fund investments that meet their requirements before taking the final decision. This will enable you to be completely aware of the annual fees chargeable on each investment and be sure of whether you are ready to shell that much extra on your investment. It is recommended that young and new investors start with low-cost companies before moving onto the bigger players. Not just that, there are also options like no-load, low annual fees, waivable fees, ETFs and low MER index funds that investors can choose from.

Hidden terms and conditions

The salient features and benefits of funds may not be clearly defined or not transparent enough. For instance, a particular fund might be promising high short-term returns when, in reality, it invests in debt funds in which investors have to stay invested for a longer time to enjoy moderate growth.

Reading the fund investment document before investing is an integral part of the process. Read between the lines, ask questions and clarify all your doubts to make a well-informed decision.

Investing in the wrong mix of diversified funds

Investors who purchase multiple funds of the same type cannot capitalize on the high risk factor of diversification. Instead, they come at the receiving end of the diversification syndrome of the same kind. Investing in funds that focus on investing in the shares of companies specializing in the same sector or market cap also exposes them to market risks.

Solely investing in diversified funds is not enough. It is important to invest in the right combination of diversified funds to be able to benefit from such investments. For that, you need to be aware of the how to select mutual funds to achieve the best results of diversification.

Smart Tips to Keep in Mind during Mutual Fund Investments

Invest in diversified mutual funds

Simply focussing on diversifying your mutual fund portfolio by randomly investing in multiple MFs does not serve the purpose of helping you enjoy returns. Following a definite strategy, keeping in mind that you invest across different market caps and industries, is essential. Diversifying your portfolio by investing in funds specializing in the same sector and market cap would not generate the desired results.

Consider the possibility of inflationary effects

While investing in a particular MF, you can estimate the returns it is expected to generate during the term for which you plan to stay invested. However, you need to be mentally prepared for the inflationary effects that may affect the fund performance. In such situations, fund managers keep your fund on hold till the capital market is stable again. However, inflation can be unpredictable too, and in such case, make it impossible for fund managers to plan in advance.

Time it right

Mutual fund investments are exposed to unpredictable fluctuations in the capital market. Therefore, market conditions will not always be suitable for every type of MF investments. Capital market conditions vary every day and, therefore, you should check how the fund that you are interested is performing on a certain day before you invest in it. If it is not doing well, wait for the day when it improves and then invest in it. Sometimes, the value of a mutual fund may abruptly depreciate. The only way to overcome the situation is to wait for the shares and stocks to recuperate from the loss.

Consider your risk appetite

The more the risk involved in a certain mutual fund investment, the higher will be the returns. Mutual funds with a lesser risk does not generate as much returns. Consider your financial objectives and the degree of risk you would like to undertake to determine your risk appetite.

Consider your age

Starting to invest in mutual funds late in life prevents you from capitalizing on your investments to the maximum potential. You receive comparatively lesser returns, which get further affected by market fluctuations. Hence, you need to select your MFs investments wisely. Subtract your age from 100 and allocate the remaining number in equity funds and the number equivalent to your age in mutual funds. The number of equities will decrease as your age increases. Also consider other factors like life expectancy, retirement age, risk appetite and financial objectives before investing in MFs.

Terms Related to Mutual Funds

  • AMC: An Asset Management Company is a firm that pools investments from individual and institutional investors. It then invests in suitable asset classes like equities, debts, balanced funds or money market instruments. The objective of AMCs is to build a robust portfolio that generate optimal returns for the investor.

  • NAV: Net Asset Value can be defined as the value per share of a fund or an Exchange Traded Fund (ETF) on a certain day and time. The NAV, which varies frequently, is the per-share dollar amount of the fund is determined basis the sum total of all the securities in the portfolio, liabilities of the fund (if any) and the count of the outstanding fund shares.

  • Entry Load: The entry load is the additional charge to be paid by investors over and above the investment amount during the time of availing a fund. The charges are based on the number of units of a fund purchased by the investor. The entry load percentage is added to the existing NAV or Net Asset Value at the time of allotment of the units.

  • Exit Load: Exit load is payable by an investor at the time of redemption of a fund or switching of a fund between schemes. The exit load percentage is subtracted from the prevailing NAV at the time of redemption or transfer. This fee is paid to the Asset Management Company and is not contributed to the pool of funds of the relevant scheme.

  • Portfolio: A portfolio comprises of financial assets like shares, stocks, bonds, currencies, securities and cash equivalents, and also fund counterparts such as Exchange Traded Funds (ETFs) and closed funds. It may also include securities that cannot be traded in public like art, real estate, private investments, etc. In short, portfolio is an accumulation of the existing investments of an investor, either directly managed by him/her or by an Asset Management Company. A robust portfolio is one that consists of fund investments that meet the unique investment objectives and risk appetite of the investor. An investor may have multiple portfolios to cater to his/her varied financial goals.

  • Corpus: Corpus refers to the total value invested towards a particular scheme by all investors. AUM–Assets Under Management is the sum total of the market value of assets managed by a financial institution or investment company on behalf of an investor. Companies have their own formula for calculating their AUM.

  • Diversified equity fund: Diversified equity funds parks money in the shares and stocks of companies, irrespective of their size and sector. It aims at diversifying investments to introduce balance in the portfolio by averting risks that arise during volatile capital market.

  • Debt fund: Investments are made in debt instruments such as corporate bonds, debentures, government securities, etc.They are less risky when compared with equity funds, and the returns are not as high. They serve as an effective investment option for investors looking for a steady source of income.

  • New Fund Offer (NFO): A New Fund Offer (NFO) refers to the special benefits offered by an investment company on the first subscription of its new fund. A new fund is a fund that has just been launched, enabling the company to raise capital for buying securities. Mutual funds are the most common example of new fund offerings of an investment company. The initial benefits on such offers differ based on the fee structuring of the new fund.

  • SIP investment: SIP is a Systematic Investment Plan that enables the investor to invest the money in installments for a period of time in MFs. SIP takes the burden out of the investor to make lump sum money available in one shot.

  • Asset class: An asset class is a group of stocks, shares and securities that are similar in their salient features and benefits, act in a similar fashion in the capital marketplace and are regulated by the same laws. The three primary asset classes are equities, money market instruments and cash equivalents.Some fund houses also invest in commodities, real estate, etc. to the asset class mix.

  • Dividend mutual funds: These funds mainly invest in businesses that pay dividends. The stocks and shares are sold at a comparatively higher cost than what they were purchased at. The profits are added to the prevailing Net Asset Value (NAV) by the Asset management Company.

  • ETF: ETF or Exchange Traded Fund is a security that monitors bonds, group of assets, index or commodities. Unlike funds, ETFs share trade on an exchange like common stocks. Its share prices vary throughout the day. The largest ETFs generally have larger volumes and attract lower fees than fund shares, making them an effective investment instrument for individual investors.

  • Money market funds: They invest in highly liquid money market financial instruments such as treasury bills, commercial papers, certificate of deposits, etc.Money market funds are best for those looking to stay invested for a limited period. Not just that, these also enable high liquidity.

  • Redeem: Mutual funds can be redeemed by investors on any business day, either online or offline. For the offline option, a requisite transaction slip has to be filled up by the investor, detachable from the bottom of the account statement. It has to be submitted at any branch of the relevant fund house. For the online mode, the requisite transaction slip can be downloaded from the official website of your chosen fund house.

  • Floating rate debt: A floating rate debt is a type of debt like a bond whose coupon rate fluctuates with capital market conditions.

  • Lock-in period: A lock-in period refers to the minimum period for the fund to reach its maturity. Investors of the fund have to stay invested in it during this period for enjoying healthy returns. The money invested in mutual funds or the accrued interest cannot be withdrawn before the completion of the lock-in period.

  • Lump sum investment: A lump sum investment refers to a large one-time corpus that an investor would like to invest as opposed to investing the same amount in multiple instalments at regular intervals over a pre-decided time period. This lump sum amount may be the amount received after retirement or the profits of an investment or gift, etc.

Case Study on Mutual Fund Investment and Performance

Let’s take the case of HDFC Balanced Fund, renamed as HDFC Hybrid Equity Fund.

  • Launched in August 2000 with the objective of generating capital appreciation by investments in equity, debt and money market instruments at a ratio of 60:40 for equity and debt.
  • HDFC Balanced Fund has been merged with HDFC Premier Multi-Cap Fund and renamed HDFC Hybrid Equity Fund since June 01, 2018.
  • It is an open-ended balanced scheme, growth and dividend option, with no lock-in period applicable.
  • Minimum application amount is Rs.5,000 for new investors and Rs.1,000 for existing investors. This is not applicable for SIP plans.
  • An Exit Load of 1% is applicable if units are redeemed or switched-out within 18 months from the date of allotment.
  • The risk involved for equity and equity-related instruments is medium to high, while for debt securities, it is accompanied by low to medium.
  • Investments in equity focus on long term investments, based on economic trends and investor sentiments. The decision to sell a holding is taken when the value of equity has reached its optimum level or there are other investment options that offer better return or the market in has undergone a fundamental change.
  • Investments in money market instruments include treasury bills, commercial papers and bills, certificate of deposit, etc.
  • Invests in medium and large-sized companies that are expected to achieve above average growth than the existing industry standard, commands a clear competitive advantage, and is superior financially.
Mutual Funds FAQs

FAQ on Mutual Funds

What are the risks involved?

MFs are dependent on the market returns and thus possess the risks of volatile market conditions.

How is an MF set-up?

Mutual fund is set up in the form which includes trustees, sponsor, custodian and asset management company (AMC).

How to choose the right MF?

Open Ended

  • Debt/Income: If your objective is to get a stable income from your MF investment, then debt/income funds are an ideal choice for you.

  • Money market/liquid: If you want to invest your money for a shorter duration, then money market/liquid funds are the ones for you.

  • Equity/growth: If your financial goal is to make good returns over a long-term period and a good appetite for risk taking, then equity/growth funds are the best choices for you.

  • Balanced: If you want a balance of equity and debt-related investment in your portfolio, then you should go for balanced funds, which give you moderate capital growth and decent returns on your investment.

Close Ended

  • Capital Protection: As the name suggested, the objective of these funds is to safeguard the investor's capital during the downtime of the market.

  • Fixed Maturity Plans: Fixed maturity funds plan are closed-ended debt funds having fixed maturity period. These are like conventional bank FDs. The fixed maturity plans are not open for subscription on a continuous basis like open-ended funds plans.

What are the drawbacks?

Cost, Taxes, and Fees

A mutual fund has a cost associated with the returns it produces. There are prices charged not only for the price of the fund but also for additional fees depending on the commission charges. A fee also goes towards the fund management charges.

Mutual funds returns get taxed by the government. The investor also has to pay for transaction charges plus the cost incurred towards maintaining the fund. Some riskier mutual funds can have more management fee levied on them.

Unpredictability

Mutual funds returns can be quoted hypothetically but it is impossible to give a written guarantee on the returns as they are linked to the performance of an industry. Some mutual funds carry a high amount of risk, some others carry a moderate amount of risk. It all depends on how well the mutual fund portfolio is diversified.

Who can invest in MFs?

  • Indian residents
  • Non-resident Indians (NRI)
  • People of Indian Origin
  • Parents/Guardians on behalf of minors
  • Indian Public Sector Undertakings
  • Indian Private Sector Undertakings
  • Cooperative Societies
  • Charitable or Religious Trusts
  • Trustee, AMC or Sponsor of their associates
  • Endowment or Registered Societies
  • Scientific and/or industrial research organizations
  • Wakf Boards
  • Hindu Undivided Family
  • Sole Proprietorship Firms
  • Partnership Firms
  • Other associations, institutions, bodies, etc., authorized to invest in mutual funds

What is the process to make an investment?

  • Agents: You can buy mutual funds through an agent/broker. The agent/broker will get his commission from the fund house on your purchase. They will also receive a percentage of your portfolio value which is created by them as commission.

  • Direct: Mutual fund companies offer mutual funds online for purchase and you can directly purchase them from their websites. Why to Apply for Mutual Funds Online?

  • Convenience: Online platform gives you ease of investing the mutual funds at the convenience of your home at any time.

  • Easy Comparison: You can compare features of different mutual funds online and review the fund performance and its current value.

  • Affordable: As you buy the mutual funds directly, agent commission is saved. This makes it cheaper to buy mutual funds online.

  • Independence: Online platform gives you the independence to login to the portal and review your mutual funds anytime. You can also redeem or buy new mutual funds at your convenience.

Know more aboutHow to Invest in Mutual Funds

Will there be TDS when I redeem my MFs?

Yes, there is a TDS applicable for resident Indians when selling/redeeming units, be it of debt mutual funds, Equity mutual funds, tax saving mutual funds or ELSS mutual funds. A Long Term Capital Gains (LTCG) Tax at the rate of 10% is applicable on capital gains from equity mutual fund redemptions.

Are MFs a safe investment option?

Mutual fund investments are not devoid of risks arising from capital market fluctuations. The returns may vary from your initial estimates due to market volatility. However, you can be assured that your investments are in safe hands, irrespective of the fund house that you have invested in. This is because all mutual fund investments in India are under the strict regulation and supervision of government entities like the Securities and Exchange Board of India (SEBI) and the Association of Mutual Funds in India (AMFI). What’s more, there are mutual fund options that not only aim for generating returns, but are also tax-efficient. Hence, they serve the dual purpose of an investment-cum-savings tool.

How much should I invest?

There is no maximum limit for the amount you would like to invest towards mutual funds. Its flexibility is further emphasised with the fact that mutual fund investments through SIP or ELSS can be started with an amount as meagre as Rs. 500. You can decide on the amount you would like to invest in mutual funds as per your financial ability and investment objectives.

Are all MFs tax exempt?

The only mutual fund that offers tax benefits is Equity Linked Savings Scheme or ELSS. It offers tax exemptions of up to Rs. 1.5 lakh annually under Section 80C of the Income Tax Act, 1961.

Can you lose your money in a mutual fund?

Mutual fund investments are vulnerable to volatile capital market conditions. However, not all mutual funds are exposed to the same risks. Short-term mutual funds generate comparatively higher returns while being exposed to high risks. On the other hand, medium to long term investments like debt mutual funds remain invested for a longer time and may not offer as much returns as equity funds, but they are susceptible to lower market risks. Expertise in mutual fund investments enable investors to switch between funds before inflation sets in. However, unpredictable inflationary effects lead to losses.

Do mutual funds pay dividends?

Yes, mutual fund investments paying dividends has become an emerging trend in the last couple of years. Fund houses pay dividend payoutsat regular intervalsto create a positive impression about their mutual fund. Further, Indian investors often equate mutual fund dividends with company dividends and interpret them as net gain. Besides, distributing dividends ina rising economy like India minimizes the risk of equity mutual fund schemes.

How do I choose a mutual fund?

Not all mutual funds are suitable for every investor. It depends on factors like existing fund performance and other parameters that are unique to every individual such as investment objective, risk appetite, etc.

How is expense ratio calculated?

The Total Expense Ratio or TER is calculated by dividing the totalexpense incurred for a mutual fund in a certain year by the total assets of the mutual fund averaged throughout that year. It is denoted in the form of a percentage.

How is the expense ratio charged?

The Total Expense Ratio (TER) is the evaluation of the total cost of a mutual fund incurred by the investor. The final charges may involve various fees for purchase, repurchase, auditing, redemption, etc.

Is demat account required for SIP?

No, you do not require to open a demat account for any mutual fund investment, including SIP. You only need to fill up and submit the KYC or Know Your Customer Form for investing in mutual funds. Demat accounts are compulsory for trading in the stock market.

What are the risks of MF investments?

One of the primary risks that mutual fund investments are exposed to are the fluctuations and volatility of capital market conditions. While certain inflationary situations can be foreseenand funds can be switched to safeguard the portfolio against risks, inflation sometimes can be unpredictable too.Another risk to mutual fund investment is investing in the wrong mix of diversified mutual funds. Investing in mutual funds of the same asset class, sector and company cap does not help in achieving the diversity that a portfolio requires to avert avoidable capital market risks. Lack of clarity in mutual fund policy document can be another risk, misleading investors regarding their salient features and benefits.

What are 80C, 80CCC and 80CCD?

The provisions laid down in Sections 80C, 80CCC and 80CCD of the Income Tax Act, 1961 are:

Section 80C – Under this section of the Income Tax Act, 1961, an investor can enjoy tax deductions of up to Rs. 1.5 lakh annually from his/her annual income on specific investments like mutual funds, PPF, LIC, etc.

Section 80CCC–This section of the Income Tax Act, 1961 focuses on tax deductions on premium paid towards certain annuity plans as referred to in Section 10(23AAB). Pension received from annuity or the amount received after surrendering the annuity plan, along with the interest or accrued bonus, is taxable on the year of receipt.

Section 80CCD – This section of the Income Tax Act, 1961 pertains to tax deductions eligible by individuals contributing towards pension accounts. The maximum deduction that can be availed is 10% of annual income for taxpayers who are salaried professionals and 20% of annual income for taxpayers who are self-employed, or Rs. 1.5 lakh, whichever is lesser. This section is further classified into two categories:

  • Section CCD(1B)–Under this section, additional deductions of up to Rs. 50,000 can be claimed by taxpayers on deposits made towards savings schemes like NPS (National Pension Scheme) account and Atal Pension Yojana.

  • Section 80CCD (2)–This section includes provision for additional deductions for employers contribution towards pension accounts of their employees and accounts for 10% of the employee’s salary. There is no maximum limit applicable on this deduction.

What is a good expense ratio?

The expense ratio of mutual fund varies from time to time, based on the performance of your fund in a year. It is the percentage of the number of assets that a fund house takes back in lieu of the services offered by it. Hence, the lower the percentage, the better it is for an investor.

What is a good ROI?

A good marketing ROI is considered to be 5:1. A ratio beyond 5:1 is considered to be a strong ratio for businesses, while a 10:1 ratio is exceptional. Achieving a ratio higher than 10:1 ratio is way beyond expectations though it can become a reality.

What is a good turnover rate?

Turnover rate for a mutual fund portfolio is measured on a scale between 0% and 100%. 0% turnover rate implies the holdings of the mutual funds have remained unchanged in the previous year. On the other hand, a rate of 100% indicates that the fund has a completely new portfolio that is different from what it was a year back. This is because all the funds in the previous portfolio have been sold and new investments have been made in its place. Certain very aggressive funds can have turnover rates even beyond 100%.

What is difference between MF and SIP?

A mutual is not a category of securities but rather a scheme that enables the purchase of securities. On the other hand, SIP or Systematic Investment Plan is a mode of mutual fund investments that enables investors to make premium payments in easy instalments as opposed to lump sum payments.

What is the 10-year average return that I can expect on the S&P 500?

The 10-year average return on the S&P 500 index return is generally 0.66%, more than returns on mutual funds over the same period of time.

What is the average rate of return?

The average 10-year return on mutual funds is about 0.66% lesser than the S&P 500 index return over the same tenure. For instance, if a mutual fund offers a return of 4.23%, the S&P 500 will generate an average return of 4.895%.

What is the average rate of return on a retirement account?

There are different types of retirement schemes that you can opt for and each of them has their own interest rates that vary from time to time. For instance, the interest rate for Senior Citizen Savings scheme is 8.7%, as per the Oct-Dec 2018 quarter, whereas it was 8.3%, according to the previous quarter of July-Sept 2018.

What is the total expense ratio?

The Total Expense Ratio (TER) is the percentage of the total expenditure made towards a mutual fund in a specific year to the total mutual fund assets averaged throughout that year.

When can I expect to receive the proceeds of the repurchase of my investment?

Regulated by government agencies like SEBI, it is mandatory for the MF to dispatch the dividend warrants to the investors within 30 days of the declaration of the dividend. Redemption or repurchase proceeds have to be dispatched within 10 working days from the date of redemption or repurchase request issued by the investor. If the fund house fails to dispatch these proceeds within the stipulated deadlines, they are liable to pay interest at the current rate of 15%, as per SEBI regulations.

What are some of the leading MF investments in India?

Here are some of the best performing fund houses:

  • Aditya Birla Sun Life Small & Midcap Fund
  • HDFC Monthly Income Plan – MTP
  • ICICI Prudential Focused Bluechip Equity Fund
  • Kotak Corporate Bond Fund
  • Canara Robeco Gilt PGS
  • DSP BlackRock Balanced Fund

What is the ideal scheme for a 19 year old investor?

It is always wise to start investing at an early age so as to gain good returns later. As a 19 year old investor who wants to inculcate the habit of saving with merely Rs. 1000-2000 per month, multi cap funds are a good idea. These funds offer the liberty to switch market caps depending on the situation of the market.

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