Mutual Funds

A Mutual Fund is basically investment of many investors clubbed together and invested by a professional on their behalf in different securities like short-term money market instruments, stocks, precious metals and bonds. The money gets invested in various assets classes as per the fund’s investment objective.

The best thing about a mutual fund is, as it has many investors’ money put together, even small amounts per investor is enough. The investments and monies pooled are managed by professional fund managers in exchange for a small fee. The funds are normally well diversified to control any potential losses. Mutual funds are a smart way to save money without having to pay high fees or requiring constant attention from individual investors.

Types of Mutual Funds in India

Benefits of Investing in a Mutual Fund

  • Professional Management: One of the best advantages of investing in the mutual fund is that you don’t have to break your head on research and analysis required to find lucrative investments. All this work is done by professionals on your behalf and you get to enjoy the fruitful results of your investments.

  • Diversification of Risks: The famous quote, “Never put all your eggs in one basket” is applicable with mutual funds. With mutual funds you can diversify your investment so underperformance of one fund can be managed by the performance of other fund making your investment safe.

  • Affordable Investment Option: It is not difficult to invest in mutual fund these days. You can invest in SIP for as low as INR 500 a month making it more affordable to the masses.

  • Focused Investments: In mutual funds you can allot your investment as per your investment objective. Equity, Income, balanced, money market all are individual focussed investments. This helps the investor in streamlining their investments as per the different options available.

  • Choice of Assets: Mutual funds give you the investment option of choosing funds which are invested in different multiple business sectors. This wide choice of asset selection helps the investor’s investment to grow as per the selection available and risk appetite of the investor.

  • Easy Purchase and Redemption: Today it is easy to purchase mutual funds and also redeem the invested funds online. The whole process can be done online by logging to the online portal of the fund house you have invested in by yourself.

  • Tax Benefits: Only ELSS (Equity Linked Saving Scheme) mutual funds give you tax rebate on investment of up to INR 1.50 lakh under section 80C of the Income Tax Act, 1961.

  • High Returns: You can achieve high returns through mutual funds’ investments by investing in growth funds aka equity funds.

  • Regulated Investments: All mutual funds in India are regulated by SEBI, Securities Exchange Board of India- (Mutual Fund) Regulations 1996.

  • Easy to Track: Today all mutual funds house give you online access to view, track and redeem your investments. On the offline platform, you will need to provide a folio number and scheme details which is given to the investor for his mutual fund units. This folio number helps an investor track his investments through the newsletters published by the fund houses and daily newspapers.

  • SIP Options: SIP is a Systematic Investment Plan. this plan helps the investor to invest the money in instalments for a period of time in mutual funds. SIP takes the burden out of the investor to make lump sum money available in one shot.

Who Can Invest in Mutual Funds in India?

  • 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

How to Invest in Mutual Funds

  • 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.

To Know more about How to Investment in Mutual Funds

Mutual Funds FAQ

What are the risks involved in investing in Mutual Funds?

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

How is a Mutual Fund 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 Mutual Fund?

Open Ended

  • Debt/Income: If your objective is to get a stable income from your mutual fund investment, then debt/income mutual 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 mutual 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 mutual 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 mutual 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 mutual funds is to safeguard the investor's capital during the downtime of the market.

  • Fixed Maturity Plans: Fixed maturity mutual 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 mutual funds plans.

Disadvantages of Mutual Funds

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.

Leave a rating!
4.6 (5 votes)