Beginners guide English

Beginners Guide To Mutual Funds

It’s time to take the big leap and let the money work for long term wealth creation. These days the investment options are many, but very few of them yield better returns if you compare it with mutual funds.

A mutual fund is an investment vehicle, which is gaining quite an attention from those who are keen to invest in market-linked products. Here’s a beginners guide to mutual funds.

Introduction to mutual funds:

Mutual fund companies pool money from investors to invest in stocks, bonds or other securities to fulfil short, medium or long-term goals. The fund manager is responsible for the management of the investment portfolio and helps investors to meet their respective goals by choosing diversified assets to mitigate risks and ensure maximum returns. It is one of the best wealth creation strategies for beginners.

Types of mutual funds in India

A mutual fund is classified into several types based on risk, maturity period, investment objective, etc. In India, it is majorly categorised into type of underlying assets, these include:

1.Equity Mutual Funds: The very aim of the equity mutual fund is to provide capital appreciation, suitable for aggressive investors with a medium to long term investment goals. Equities are basically stocks of the listed companies, and they are highly risky. But, at the same time, this type of fund offers high returns.

2. Debt Mutual Funds: For conservative investors, debt mutual fund scheme is an ideal option. The focus of investment is mostly on fixed-income investments such as corporate bonds, government securities, debt securities and money market instruments. Debt mutual fund is a low-risk option offering constant yields.

3.Hybrid Mutual funds: Hybrid scheme is a combination of equity and debt mutual funds. If you are looking for moderate growth, this type of fund is the best alternative. The equity component of the fund is subject to market volatility.

Features of Mutual Funds:

•Mutual funds are professionally managed by fund advisors or experts, who ensure that the investment goals are met. The expert performs a thorough analysis before investing in any scheme in order to derive large yields.

•Investment goals of every investor vary. With the right advice, you will find a suitable mutual fund as per your goals and investment horizon.

•Open-ended mutual funds allow you to exit and enter in a scheme as per your choice. The redemption of such units is based on the prevailing net asset value.

Benefits of Mutual Funds:

Good Returns: In comparison with the share market, investing in a mutual fund scheme is a safe bet as you can earn returns at a rate of 7% to 15%. If you do not have a high-risk appetite, you can opt for a low-risk fund.

No Fixed Investment Amount: One of the biggest benefits with mutual funds is that you are free to choose your investment amount. It depends on your financial status. For starters, you can begin with Rs.500. New investors can start investing immediately and build a large corpus in the long run.

Ways to Invest: You can choose lump-sum payment or a systematic investment plan (SIP). The lump-sum is a good option for those who have enough idle money, while SIP is the best alternative to reduce risk and invest in schemes in an affordable way.

Diversification of Portfolio: Mutual fund investment gives you the flexibility to invest across a class of assets. This helps to reduce risk and ensures maximum returns.

Tax-efficient: When it comes to investment, we all expect tax benefits in returns. If you’re planning for tax-efficient funds, you can opt for Equity Linked Saving Scheme or ELSS. You are eligible to claim tax deductions under Section 80C of the Income Tax Act.

Eligibility to Invest In Mutual Funds In India

The mutual fund industry is regulated by the Securities and Exchange Board of India or SEBI. As the authority, an investor is required to meet the standard eligibility criteria:

•Any Indian resident above 18 years of age

•Non-Resident Indians

•Persons of Indian Origin

•Companies

•Charitable Trusts

•Corporate bodies

•Private trusts

•Cooperative societies

•Foreign Institutional Investors

Investing in Mutual Funds:

A lot of people do not invest in mutual fund schemes as they think it is complicated. But it is easy to invest in mutual fund through offline or online mode. Before investing, you should complete your KYC (Know Your Customer) as it is a mandatory requirement investor needs to fulfil as per the SEBI rules.