Mutual Fund


Mutual Fund

Mutual fund schemes are subject to market risk read all related documents carefully !

Mutual Funds are most popular among all investors. These are professionally managed investment schemes for investors who wish to save and increase their worth.

Mutual Funds are also one of the most efficient financial products that link the investor to the equity market without having to deal with ups & downs involved.

Anyone with a small surplus of even a few hundred rupees can invest in Mutual Funds. There are many kinds of mutual funds offering a variety of financial goals.

What Are Mutual Funds And How Do They Work?

A mutual fund is a type of professionally managed collective investment scheme that pools money from several investors to purchase securities. It is the trust that pools the savings of several investors who share a common financial goal to be invested by the fund managers (on a macro level) in different kinds of securities, ranging from shares, and debentures to money market instruments…, in accordance with a stated set of objectives. The investors get denominations by ‘units’ whose value is called ‘Net Asset Value (NAV)’ which changes every day.
In the long term, mutual funds have the potential to perform better than other assured return products.

Advantages of Investing in Mutual Funds:

  • • Convenient Administration
  • • Low Cost and Good Return Potential
  • • Transparency
  • • Wide Range of Schemes
  • • Tax Benefits
  • • Portfolio Diversification
  • • Reduction in Risk and Transaction Costs
  • • Liquidity, Convenience and Flexibility
  • • Safety - Well Regulated By SEBI

Know More About Mutual Funds

What kind of incomes can be made through Mutual Funds?

  • Income through Capital Appreciation: As the value of securities in the fund increases, the fund's unit price will also increase. There would be capital appreciation when you sell your available units at a price higher than the price at which you bought.
  • Income through Coupon/Dividend Income: Fund will earn interest income from the bonds it holds or will have dividend income from the shares.
  • Income Distribution: The fund passes on the profits it has earned in the form of dividends which is then invested in other Mutual Funds.

What are the different types of Mutual Funds?

  • Open Ended Funds: The units of Mutual Funds can be bought & sold based on NAV related prices at any time directly. Open-ended schemes are offered for sale at a pre-specified price, say Rs. 10, in the initial offer period. After a pre-specified period of say 30 days, the fund is declared open for further sales and repurchases. Investors receive account statements of their holdings. The corpus of Open-ended scheme changes every day.
  • Close Ended Funds: A close-ended mutual fund is open for sale to investors for a specific period, after which further sales are closed. Any further transactions happen in the secondary market (stock exchange) where close-ended funds are listed. The price at which the units are sold or redeemed depends on the market prices, which are fundamentally linked to the NAV. The number of units of close-ended funds remains unchanged. The unit capital is fixed because of a one-time sale.

Who can invest in Mutual Funds?

  • Step 1: Identify your investment objectives ? Check your risk capacity. And how much can you invest?
  • Step 2: Choose the right mutual fund? Check the track record of performance over the last few years in relation to the appropriate Benchmark and similar funds in the same category. Check efficiency, promptness and personalized service of the organization from which you’re buying the fund. It is also important to check the degree of transparency as reflected in frequency and quality of their communications.
  • Step 3: Select the ideal mix of schemes. Investing in just one scheme may not meet all your investment needs.You may want to consider investing in a combination of schemes to achieve your specific goals.

Taxation Benefits?

The amount invested in tax-saving funds/Equity Linked Saving Schemes (ELSS) is eligible for deduction under Section 80C upto a limit of Rs.1, 00,000/- (in a financial year). Dividend from Mutual Fund Schemes is Tax-Free in the hands of the Investor/recipient.Indexation Benefit under Long-term Capital Gain in Debt schemes.

What are the risks involved in Mutual Funds?

  • The risk is an inherent aspect of every form of investment.

  • Investment risk: For Mutual Fund investments, risks would include variability, or period-by-period fluctuations in total return.
  • Market risk: At times, the prices or yields of all the securities in a market rise or fall due to broad outside influences. This change in price is due to 'market risk'.
  • Inflation risk: Sometimes referred to as 'loss of purchasing power'. Whenever the rate of inflation exceeds the earnings on your investment, you run the risk that you'll be able to buy less, not more.
  • Credit risk: In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?
  • Interest rate risk: Interest rate movements in the Indian debt markets at times can be volatile leading to the possibility of large price movements up or down in debt and money market securities and thereby to possibly large movements in the NAV.Other risks associated are liquidity risk and changes in the government policy