A mutual fund is a platform where investors pool their money which is managed by a professional Fund Manager.

Asset Management company collects money from investors who have agreed to invest in equity shares, debt instruments, gold, silver and other securities as per the objective defined. Profits and gains are distributed to the investors after deducting expenses and taxes.

Stairway to enter into the world of Mutual Funds:

  • Set Your Financial Goals
  • Quantify Goals to Financial Freedom
  • Identify Your Risks
  • Seek Expert Advice
  • Start Investing and be diligent
  • Review Your Portfolio Periodically

Types of Mutual Funds

Equity Schemes

An equity Scheme is a fund that primarily invests in equities and equity related instruments and seeks long term growth but could be volatile in the short term.

Debt Schemes

A debt fund/ Scheme (also known as income fund) is a fund that invests primarily in bonds or other debt securities issued by government, public financial institutions, companies such as Treasury bills, Government Securities, Debentures, Commercial paper, Certificates of Deposit and others.

Hybrid schemes

These are a mix or combination of Equity and debt schemes. SEBI can divide it into 7 sub categories- Conservative Hybrid Fund, Balanced Hybrid Fund, Aggressive Hybrid Fund, Dynamic Asset Allocation or Balanced Advantage Fund, Multi Asset Allocation Fund, Arbitrage Fund and Equity Savings.

Equity Schemes

Solution Oriented Schemes- For retirement and Children
-Retirement Fund- Here, the lock-in period is for at least 5 years or till retirement age whichever is earlier.
-Children Fund- Lock-in for at least 5 years or till the child attains age of majority whichever comes earlier.

Other schemes

It includes Index Funds or Exchange Traded Funds (ETFs) and Fund of Funds.

Criterion to Choose a Mutual Fund for Investment:

  • Compare Fund’s Performance to Benchmark & Peers
  • Get Idea about expense ratio
  • Check the fund’s historical performance
  • Know about the Fund’s Portfolio Strength
  • Analyze Fund’s risk adjusted returns

Benefits of Investing in Mutual Funds

Choosing Mutual Funds as your investing option is the best choice to make because of the benefits it offers. From high returns to less twists and turns, there are a range of advantages of investing in Mutual funds.

1. Professional Management: The most important benefit of investing in mutual funds is that the investment is managed professionally. We all know that investing demands proper study, research and knowledge and this where most of us are lacking. A mutual fund is managed by full-time, professional money managers who have the expertise, experience and resources to actively buy, sell, and monitor investments. A fund manager continuously monitors investments and rebalances the portfolio accordingly to meet the scheme’s objectives. Based on your risk potential and goals, the experts like Finstreet India Investment Services LLP suggest suitable investments.

2. Risk Diversification: You can never eliminate risks when it comes to investing but you can reduce it with diversification. Buying shares in a mutual fund is an easy way to diversify your investments across many securities and asset categories such as equity, debt and gold, which helps in spreading the risk - so you won't have all your eggs in one basket. This proves to be beneficial when an underlying security of a given mutual fund scheme experiences market headwinds. With diversification, the risk associated with one asset class is countered by the others. Even if one investment in the portfolio decreases in value, other investments may not be impacted and may even increase in value. In other words, you don’t lose out on the entire value of your investment if a particular component of your portfolio goes through a turbulent period. Thus, risk diversification is one of the most prominent advantages of investing in mutual funds.

3. Affordability & Convenience (Invest Small Amounts): Directly investing in different types of securities might be costly for many of us. But thankfully, we have an option of Mutual Funds where all the securities are held at one place. Further, the minimum initial investments for most mutual funds are more affordable. SIP in Mutual funds starts with as low as 100rs. Due to huge economies of scale, mutual funds schemes have a low expense ratio.

4. Wider basket: In mutual funds, the best part is that you reduce your risk by investing your money on different securities. It is always better to have a variety of securities to invest in rather than putting all your money on one type of security.

5. Tax Benefits: Investment in ELSS up to ₹150000 qualifies for tax benefit under section 80C of the Income Tax Act, 1961. Mutual Fund investments when held for a longer term are tax efficient.

6. Well-Regulated: Mutual Funds are regulated by the capital markets regulator, Securities and Exchange Board of India (SEBI) under SEBI (Mutual Funds) Regulations, 1996. SEBI has laid down stringent rules and regulations keeping investor protection, transparency with appropriate risk mitigation framework and fair valuation principles.

Schedule a call today and start securing your financial future! Our expert consultants will work with you to create personalized plan tailored specifically for you based on your unique needs and risk ability.

FAQs

What is SIP (Systematic Investment Plan) in Mutual Funds

The investment amount, which is deducted automatically from the investor's bank account on Daily/ Weekly/ Monthly Basis.

What is minimum amount for SIP (Systematic Investment Plan) in Mutual Funds

The minimum amount for SIP in Mutual Funds is just Rs. 100/-

What is STP(Systematic Transfer Plan)

STP allows investors to transfer a fixed amount or a certain number of units from one mutual fund scheme to another at regular intervals. This is to avoid manual redemption in one scheme and reinvestment in another

What is SWP (Systematic Withdrawal Plan)

SWP allows investors to withdraw a fixed amount or a specific number of units from their mutual fund investment on regular intervals. The investor decides the frequency and amount of withdrawals. This can benefit investors who require a regular income stream.

What is NFO (New Fund Offer)?

It refers to the launch of a new mutual fund scheme or investment product by an asset management company (AMC).

NFO has a defined subscription period during which investors can subscribe to the new scheme by purchasing its units.

What is Entry/Exit Load?

Entry load refers to a sales charge or fee that investors may be required to pay when purchasing mutual funds. It is deducted from the investment amount and reduces the number of units acquired.

Exit load refers to a fee or charge imposed on investors when they sell or redeem their mutual fund. It is typically a percentage of the redemption value or the NAV and is deducted from the sale proceeds.

What is XIRR in Mutual Funds?

XIRR stands for Extended Internal Rate of Return. XIRR is used to calculate returns on investments made on different intervals. It is useful to calculate returns on systematic investment plans as it considers the timing and volume of each investment. XIRR is relevant as investors used to make additional investments and redemptions during the term of investment.

What is the difference between XIRR and CAGR?

In the cases where cash flows occur at irregular intervals, XIRR method is used to calculate the annualised return on investment. It considers all cash inflows and outflows, along with their respective dates, to determine the annual rate of return. XIRR takes into account the timing and amount of all cash inflows and outflows making it a better method of return calculation for irregular cash flows.

Whereas, CAGR, or Compound Annual Growth Rate, is a method used to calculate the annualised return on investment when cash flows occur at regular intervals. It assumes a constant rate of growth over a specific period and calculates the average rate of return during that period.

What is absolute return?

Absolute return is the actual percentage gain on an investment portfolio that you make during the specific time frame. For example, Suppose you have invested Rs 100000 and it stands at Rs 103000 after 3 months, so the absolute return would be 3 percent.

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