4. A mutual fund collects money from investors and invests the money on their behalf. It
charges a small fee for managing the money.
A pool of money from numerous investors used to invest in a portfolio of
securities—managed by a professional portfolio manager
5. When you own shares in a mutual fund, you own a small part of the portfolio
Distributions of interest income, dividend income and capital gain/losses occur to
investor in terms of the proportion of the total number of mutual fund shares owned.
Mutual funds are an ideal investment vehicle for regular investors who do not know
much about investing. Investors can choose a mutual fund scheme based on their
financial goal and start investing to achieve the goal.
8. DIVERSIFICATION
Going by the adage, 'Do not put all your eggs in one basket', mutual funds
help mitigate risks to a large extent by distributing your investment
across a diverse range of assets. Mutual funds offer a great investment
opportunity to investors who have a limited investment capital.
CONVENIENCE
Mutual funds are an ideal investment option when you are looking at
convenience and timesaving opportunity. With low investment amount
alternatives, the ability to buy or sell them on any business day and a
multitude of choices based on an individual's goal and investment need,
investors are free to pursue their course of life while their investments
earn for them.
HIGHER RETURN POTENTIAL
Based on medium or long-term investment, mutual funds have the
potential to generate a higher return, as you can invest on a diverse
range of sectors and industries.
9.
10. MANAGE INFLATION
Mutual Funds help investors generate better inflation-adjusted returns,
without spending a lot of time and energy on it. While most people consider
letting their savings 'grow' in a bank, they don't consider that inflation may be
nibbling away its value.
Mutual Funds provide an ideal investment option to place your savings for a
long-term inflation adjusted growth, so that the purchasing power of your hard
earned money does not plummet over the years.
SAFE AND TRANSPARENT
Fund managers provide regular information about the current value of the
investment, along with their strategy and outlook, to give a clear picture of
how your investments are doing.
Moreover, since every mutual fund is regulated by SEBI, you can be assured
that your investments are managed in a disciplined and regulated manner
and are in safe hands.
Every form of investment involves risk. However, skilful management,
selection of fundamentally sound securities and diversification can help
reduce the risk, while increasing the chances of higher returns over time.
11. LIQUIDITY
Investors have the advantage of getting their money back promptly, in
case of open-ended schemes based on the Net Asset Value (NAV) at
that time. In case your investment is close-ended, it can be traded in
the stock exchange, as offered by some schemes.
ECONOMICAL
Probably the biggest advantage for any investor is the low cost of investment
that mutual funds offer, as compared to investing directly in capital markets.
Most stock options require significant capital, which may not be possible for
young investors who are just starting out.
Mutual funds, on the other hand, are relatively less expensive. The benefit of
scale in brokerage and fees translates to lower costs for investors. One can
start with as low as Rs. 500 and get the advantage of long term equity
investment.
12. Backed by a dedicated research team, investors are provided with the
services of an experienced fund manager who handles the financial decisions
based on the performance and prospects available in the market to achieve
the objectives of the mutual fund scheme.
EXPERT MANAGERS
14. TAX BENIFITS OF INVESTING IN MUTUAL FUNDS.
Investments in Equity Linked Savings Scheme (ELSS) qualify for tax deduction of up
to R1.5 lakh under Section 80C of the Income Tax Act. No other equity funds qualify for
tax deduction under Section 80C.
However, equity funds offer you other tax benefits, too. For example, you can get tax-
free dividends from equity mutual funds. If you sell your equity mutual funds after a
year, the returns will qualify for long-term capital gains tax. Long-term capital gains tax
is nil on equity. If you sell your equity mutual funds before a year, you will have to pay
short-term capital gains tax of 15 per cent on your returns.
15. TYPES OF MUTUAL FUNDS
Money market
funds Gilt funds
Balanced fundsFixed income funds
Equity funds Index funds
Specialty funds
16. 7 COMMON TYPES OF MUTUAL
FUNDS
1. Money market funds
These funds invest in short-term fixed income securities such as government bonds, treasury
bills, commercial paper and certificates of deposit. They are generally a safer investment, but
with a lower potential return then other types of mutual funds. Its aim is to provide easy
liquidity and preservation of capital and moderate income.
2. Fixed income funds
These funds buy investments that pay a fixed rate of return like government bonds,
investment-grade corporate bonds, high-yield corporate bonds and debentures. They
aim to have money coming into the fund on a regular basis, mostly through interest
that the fund earns. High-yield corporate bond funds are generally riskier than funds
that hold government and investment-grade bonds.
17. 3. Equity funds
These funds invest in stocks. These funds aim to grow faster than money market or fixed
income funds, so there is usually a higher risk that you could lose money. You can choose
from different types of equity funds including those that specialize in growth stocks (which
don’t usually pay dividends), income funds (which hold stocks that pay large dividends),
value stocks, large-cap stocks, mid-cap stocks, small-cap stocks, or combinations of these.
4. Balanced funds
These funds invest in a mix of equities and fixed income securities. They try to
balance the aim of achieving higher returns against the risk of losing money. Most
of these funds follow a formula to split money among the different types of
investments. They tend to have more risk than fixed income funds, but less risk
than pure equity funds. Aggressive funds hold more equities and fewer bonds,
while conservative funds hold fewer equities relative to bonds.
18. 5. Index funds
These funds aim to track the performance of a specific index such as the BSE SENEX or
SNP NIFTY Composite Index. The value of the mutual fund will go up or down as the
index goes up or down. Index funds typically have lower costs than actively managed
mutual funds because the portfolio manager doesn’t have to do as much research or make
as many investment decisions.
6. Specialty funds
These funds focus on specialized mandates such as real estate, commodities or socially
responsible investing. For example, a socially responsible fund may invest in
companies that support environmental , human rights and diversity, and may avoid
companies involved in alcohol, tobacco, gambling, weapons and the military.
7. Gilt funds
These funds invest exclusively in government securities. Government securities have no
default risk and fixed return.
20. WHAT DO WE NEED ,TO BEGIN INVESTING IN MUTUAL FUNDS?
To begin investing, the first thing we need to do is to be "KYC compliant". This is nothing
but a submission of your address proof, photographs, date of birth proof and definitely
your PAN card. You can directly approach brokers for investing in mutual funds or can
directly approach the mutual fund house. It is important to remember that you have to
update your KYC each time you change your address. This is important to stay updated.
THROUGH INTERMEDIARIES:
There is a wide variety of intermediaries available. These include most banks, distribution
companies having national or regional presence, some stock brokers (including online
brokers) and a large number of individuals and small financial advisory companies. All
intermediaries have to be registered with the Association of Mutual Fund in India
(AMFI), which also maintains a searchable online directory at www.amfiindia.com. The
website also lists intermediaries who have been suspended for malpractice to protect
investors from going back to them.
WHERE TO BUY FUNDS?
21. Directly with the AMC:
You can invest in a mutual fund scheme by investing directly through the AMC.
The first time you invest in any Mutual Fund, you may have to go to the AMC's
office to make your investment. Subsequently, future investments in different fund
schemes of the same AMC can be made online, or offline, using the folio number in
your name. Some AMCs may extend the facility of sending an agent to help you fill
the application form, collect the cheque and send the acknowledgement.
TOP AMC’S IN INDIA
UTI Asset Management
Birla Sun Life Asset Management
Reliance Mutual Fund
Tata Mutual Fund
L&T Finance Limited
DSP BlackRock
HDFC Asset Management Company
Religare Asset Management Company Limited
Kotak Mahindra Asset Management Company Limited
22. POPULAR MODES OF INVESTING IN MUTUAL FUNDS
Lump Sum or One Time Investment
If you have a big sum of say Rs 1 lakh in your bank account and are looking to invest it
in mutual funds at one go, then you can consider investing via lump sum mode. But
beware! Investing all your money at one point, may call for market risk. And so to
reduce this risk, there is an option called...
Systematic Investment Plan (SIP)
SIP can help you invest your money gradually every month or quarter. Where you can
instruct the mutual fund to buy units of the scheme in your folio, by debiting a fixed
amount from your bank account every month or quarter. But do not forget, that the
balance money lying in your bank's savings account may continue to earn a lower rate of
return. So what can be a better option, to increase returns on your money lying idle?
Well, mutual funds offer an opportunity to invest regularly while providing an
opportunity to earn better returns on your idle money.
23. WHO SHOULD INVEST WHERE?
ASSET ALLOCATION SHOULD BE BASED ON INDIVIDUAL RISK TAKING
CAPACITY
If you are a Low risk taker:
Balance Fund - 40%
Large cap fund - 40%
Diversified fund - 20%
If you are a Medium risk taker
Large cap fund - 30%
Diversified fund - 45%
Midcap fund - 25%
If you are a High risk taker
Large cap fund - 25%
Diversified fund - 35%
Midcap fund - 40%
24. SUMMARY
MUTUAL FUND INDUSTRY IS A GROWTH INDUSTRY.
MUTUAL FUNDS COVER A SPECTRUM OF INVESTMENT OPTIONS.
MUTUAL FUNDS ARE FOR EVERYONE.
WE CAN INVEST DIRECTLY OR THROUGH A PROFESSIONAL MONEY
MANAGER.
START INVESTING EARLY AND SYSTEMATICALLY.
