Mutual Funds

What is a Mutual Fund?

Mutual Fund is a pool of money that is collected from a group of investors for investing in securities for instance stocks, bonds, money market instruments etc. The funds are allocated by professional money managers in order to make capital gains. The investment objectives are matched and structured according to personal portfolios.

The shareholders participate in a set proportional way to bear the gains and the losses of the fund.The performance of the underlying investments are aggregated and tracked for analysing the performance of mutual funds invested in the securities.

When you buy a share of a mutual fund, you are actually buying the performance of its portfolio. Evidently the value of the mutual fund company is a direct consequence of the performance of the securities it decides to buy.

Types of mutual fund

Equity Fund

A Mutual Fund Scheme where the investible funds are invested in equity shares and equity related instruments in domestic companies. Equity mutual funds are principally categorized according to company size, the investment style of the holdings in the portfolio.
The size of an equity fund is determined by a market capitalization, while the investment style, reflected in the funds stock holdings, is also used to categorize equity mutual funds.

Furthermore equity funds are categorized by whether they are domestic (investing in stocks of only Indian companies) or international (investing in stocks of overseas companies). Some equity funds target business sectors, such as health care, commodities and real estate and are known as Sectoral Funds

Hybrid Funds

Hybrid Funds also known as Balanced Fund invested in both equity and debt (fixed income instruments). A portfolio is created according to the objectives of the schemes and funds are allocated in equity. The assets can be bought or sold in accordance with movements of the market.

Balance funds typically invest 65% of their portfolio in stocks/equity/shares and the remainder of their resources in bonds and other debt instruments like corporate bond/ Government Bonds/ Infrastructure Bonds. So balanced funds are usually equity-oriented hybrid funds. They serve as a suitable option for first-time investors who have low-risk appetite.

Debt Mutual Funds

Debt funds are mutual funds that invest in fixed interest-earning instruments such as treasury bills and certificate of deposits. The main objective of a debt fund is to accumulate wealth by means of interest income and steady appreciation of the fund value. The underlying securities generate a fixed rate of interest throughout the tenure. The fund manager of a debt fund invests in the underlying securities based on their respective credit ratings. A higher credit rating indicates that debt security has a higher chance of paying interest regularly along with the repayment of the principal upon expiry of the investment tenure.

Why Mutual Fund?

Offers A Diversified Portfolio

The chief benefit of mutual funds is that it allows you the exposure to various shares and fixed income investments. For instance, an investment of rupees 1000 might result you with one or two shares. However investment through a mutual fund can land you with a basket of several shares for the same amount.

Fund for Everyone

The fact that there are over 2000 active schemes for mutual funds, you get a plethora of options to choose from. You must know that debt funds are considered the least risky funds. Whereas hybrid funds are moderately risky. Equity funds involve the highest risk. Nonetheless, higher the reward higher the returns!

Invest in a Lump Sum or through a SIP

Mutual Funds carry the characteristics of being highly flexible. SIP(Systematic Investment Plan) can aid you by allowing the option of investing a small amount for some time. If you have idle cash then Lump Sum investments can work wonders, however using SIP shall incur you greater returns with lesser amounts

You can Invest in Small Amounts

Investments through small amounts can be beneficial. Amount as little as rupees 500 can be a good to go with option. We need not wait to acquire enough cash to make investments. Henceforth you will be able to procure optimum use of available cash and get maximum returns.

Reduce your Tax Liability

One of the prime benefits of mutual funds is you can save income tax. Investing in an ELSS fund, can reduce your taxable income by as much as Rs 1.5 lakh under Section 80C of the Income Tax Act - 1961.Elss tax saving mutual funds has delivers you higher returns than any other tax saving instruments for instance PPF, NPS, Tax saving FDs.

Mutual Funds are Easy to Buy

Mutual Funds offer the benefit that they can be easily bought without any hassle. You can buy them from anywhere in the world and you do not require a DEMAT account to invest in mutual funds. You can contact any AMC which can offer funds and distribute through the channels like Brokerage, Agents, banks, Online Mutual Fund platforms.