You must have heard this tagline many times on television, radio, or may have seen the advertisement in the newspaper, billboards, posters, etc. But, do you know that how much is it worth to say “Mutual Funds Sahi Hai” for you?
If you are an existing investor, then you must be knowing various excellent benefits of investing in mutual funds. However, you may be unaware about the amazing thrills of profits in mutual fund investments if you have never stepped into this world.
The Association of Mutual Funds in India (AMFI) has started a campaign to spread the awareness about the investments in MF among the people. And, it laid good impact as many new registrations have been enrolled into MF investments after the successful run of this campaign. Today, we will talk about credibility of this tagline and let you understand the actual scenario that whether it really worth or not.
Creating wealth remains the dream and objective of every individual, and they keep searching the best way out to attain their goals efficiently. Mostly everyone has heard about the share market but least know how to get indulged in it and earn profits by investing. The mutual fund is a source which allows such individuals to let their money float into the share market and draw returns for them. In simple words, it helps the uninformed investors to create wealth by indirectly investing in the share market through the method of mutual funds.
The stock market has fallen by 30% in the last one month. So, in a sense, it is a good time to invest in mutual funds gradually through an SIP. And large cap mutual funds ideal to bet at this point as these schemes invest in very large companies that are more resilient to volatility in the market. Here are our recommended large cap mutual funds: Best large cap mutual funds.
You have unrealistic expectations from your investments. Assuming an annual return of 12%, you would be able to create a corpus of Rs 19.9 lakh at the end of 20 years by investing Rs 2,000 every month.
If you are new to mutual funds, you should consult a mutual fund advisor before starting your investments. The market might fall further or get volatile, you need to stay invested for a long period to create wealth over the long term. An advisor near you would guide you through such turbulent times.
Types of Mutual Funds
As an investor, it is imperative to have a deep-rooted knowledge of the types of mutual funds available in the market. Mutual funds are classified on the basis of investment objective, structure, and nature of the schemes.
Based on the investment objective
- Growth or Equity funds
- Fixed Income funds or debt funds
- Tax saving funds or ELSS
- Liquid funds or Money market funds
- Balanced funds
- Gilt funds
- Exchange-traded funds (ETFs)
Based on the Structure
- Closed-ended Schemes
- Open-ended schemes
We have explained some of the mutual funds below:
Equity Funds – The primary objective of growth funds is to provide capital appreciation to the investors by investing a major part of their corpus in equities. These funds have comparatively high risk as they are associated with highly volatile stock markets but for the long term. Growth funds can be further classified into the diversified, sector, and index funds.
Debt Funds: These funds are also known as fixed income funds and as the name implies, it invests in fixed income or debt securities such as bonds, debentures, corporate bonds, government securities, and money market instruments. These funds are less risky as compared to equity schemes. Moreover, these funds are not affected by the fluctuations in the market making it the best fit for investors having a long-term outlook seeking appreciation over a period of time. Debt funds can be further classified into Gilt funds, liquid funds, short-term plans, income funds, and MIPs.
Balanced Funds: These funds maintain a balance by investing in both equities and fixed income securities in the proportion indicated in the offer documents. Investors looking for moderate growth with moderate risks can invest in these funds.
Tax Saving Funds: As the name suggests, investors looking to accumulate wealth while saving tax can opt for these funds. Investors can get tax rebates under Section 80C of the Income Tax Act, 1961 through these funds, also known as equity-linked savings schemes.
Exchange-Traded Funds (ETFs): ETFs are mutual funds traded on the stock exchange like shares. An ETF holds assets such as stocks, bonds, or commodities. It generally offers the flexibility of purchasing and selling of units on the stock exchanges throughout the day.
Closed-ended Schemes: These funds offer a fixed number of shares through an investment company, raising investment through an Initial Public Offering (IPO). The fund is open for subscription only at the time of the launch of the scheme. Thereafter, investors can buy or sell the units of the scheme on the stock exchanges where the units are listed. These funds have a fixed maturity period, say, 5-7 years.
Open-Ended Schemes: Open-ended funds are what is commonly known as mutual funds. These funds are available for subscription on a continuous basis. Investors can easily buy and sell units at Net Asset Value (NAV) related prices declared on a daily basis.
Cost Associated with Mutual Funds Investment
Net Asset Value (NAV): NAV is the overall cost of the fund which is the value of the fund’s portfolio net of expenses.
Administration Fee: AMCs charge the investors an administration fee to manage their salaries, brokerage, advertising, and other administrative expenses.
Apart from the above-mentioned costs, AMCs may also charge loads which are nothing but the sales charges incurred by the company in the form of distribution costs.
Points to Keep in Mind Before Investing in Mutual Funds
Mutual fund investment is a big decision and if it’s not up to your alley in the beginning, certain points should be kept in mind before investing. These points will immensely help you in selecting the right funds to invest in and get profits over time.
What is the purpose of Investing?
This becomes the foundation of your investment; defining your investment goals can help you select the right fund accordingly. Be it buying a new house, car, wedding child’s education, retirement or any other, deciding the goal of the investment is a must. In a nutshell, one should have a bigger picture in their mind of how much wealth they wish to accumulate and in what duration.
Choose the right fund for you
Do your homework well as the market is brimmed with options and choosing the best fit for you might be a bit tricky task. Evaluate the fund you choose with your investment objective, risk appetite, your affordability. You can also get help from a financial advisor if you are facing difficulties in choosing the right one.
Consider the risk factors
One important thing to keep in mind comes with a certain set of risks. Schemes with high returns often come with higher risks. If you have a high-risk appetite and your investment objective is to accomplish high returns, you can go with equity schemes. On the other hand, if you don’t want an investment with high risk and moderate returns can fulfill your investment objective, then you can go for debt schemes.
