Urban Money

Mutual Funds

Mutual funds is one of the deft investment options that incurs excellent returns. Raising funds from multiple investors, asset management companies (AMCs) manage the pool of investments to provide their investors with effective returns. You can directly invest in it or use online modes or agents to make your mutual fund investments. Choose from the different types of mutual funds available in the market and reap benefits from your investments.

Mutual Funds Overview

A mutual fund is a corporation that raises funds from multiple investors and invests the accumulated amount in stocks, bonds, short-term loans and correlated assets. The portfolio of a mutual fund is made up of all of the fund's holdings. Investors purchase shares within mutual funds. Every share depicts an investor's portion of the fund's ownership and revenue.

Mutual Funds Definition

A mutual fund is a form of financial vehicle (special purpose entity) that pools money from a number of investors to invest in assets. Fund managers operate funds and are also responsible for allocating assets and generating capital gains for the investors.

Mutual funds put money into a wide range of assets and track their performance through the fund's total market capitalisation. This is calculated by evaluating the associated investments.

How do Mutual Funds Work?

An asset management firm (AMC) creates a mutual fund by pooling contributions from a variety of individuals with similar investment goals. A fund manager is responsible for managing the pooled investment by examining assets to maximise returns for investors while staying true to the fund's investment objectives.

Regular dividends and interest together with capital appreciation act as an income source for investors. They either reinvest their capital gains as a growth option or receive a consistent income in the form of dividends.

Types of Mutual Funds in India

The type of mutual fund best suited for you entirely depends upon your investment needs and goals. Broadly, there are 4 types of mutual funds:

Based on Asset Class Based on Investment Goals Based on Structure Based On Risk
Equity Funds Growth Funds Open-Ended Funds Very Low-Risk Funds
Debt Funds Income Funds Closed-Ended Funds Low-Risk Funds
Money Market Funds Liquid Funds  Interval Funds Medium-Risk Funds
Hybrid Funds Tax-Saving Funds High-Risk Funds
Aggressive Growth Funds
Capital Protection Funds 
Fixed Maturity Funds
Pension Funds

In addition to these types of mutual funds in India, mutual funds are further divided based upon specialization.

Specialized Mutual Funds

Sector Funds Index Funds Funds of Funds
Emerging Market Funds International/Foreign Funds Global Funds
Real Estate Funds Commodity-Focused Stock Funds Market Neutral Funds
Inverse/Leveraged Funds Asset Allocation Funds Gift Funds
➡️Read more about Best Mutual Funds in India 2022

Mutual Funds - Modes of Investment

Primarily there are three ways to make mutual funds investment i.e, direct investment, online investments and through agents. 

Direct Investment

Individuals can make their own investments by getting in touch with mutual fund corporations. The direct investment allows you to save money on brokerage costs and is a relatively straightforward process. You just need to go to a company's branch or obtain the form from the Asset Management venture through their website. If you want to invest directly, don’t skip the fine print and have all of your questions answered before proceeding.

Online Investment

The majority of investors invest in mutual funds over the Internet. This not only saves time but also makes it seamless to compare a broad range of available schemes. Through online portals, you only need to input a few mandatory details, and your investment procedure will be completed in minutes.

Agents

Agents have in-depth knowledge of mutual funds and years of expertise. Usually, agents invest your money according to your risk tolerance, investment objectives and income. They handle everything for you and charge a fee for their services.

Features & Benefits of Mutual Funds

The presence of diverse fund houses along with investment schemes makes the task of choosing the right portfolio overwhelming. Mutual funds open door to the below depicted key features:

  • It offers you a state-of-the-art, practical and strategic instrument for investment.
  • The entire process is managed by qualified professionals having years of expertise.
  • Risk mitigation is put forward across a diverse portfolio of assets.
  • It offers liquidity contrary to other investment alternatives including deposits, shares and bonds.
  • Regardless of the performance of the put-in money, you pay lower associated costs.
  • Consistency can be witnessed in performance terms over a short to long time period.
  • Highly flexible when it comes to achieving financial objectives and liquidity.
  • A plethora of investment choices to cater to varied investor requirements.
  • Tax benefits under the Income Tax Act Section 80C.

Mutual Fund Investing Eligibility Criteria

Individuals, partnership firms, QFIs or Qualified Foreign Investors, FIIS or Foreign Institutional Investors, PIOs or Persons of Indian Origin, NRIs or Non-Resident Indians, cooperative societies along with Hindu Undivided Families are eligible to invest in mutual funds. The key requirement is applicants must be KYC compliant to invest in mutual funds.

FAQs

Are mutual funds a good investment?

Although all investments include some risk, mutual funds are generally thought to be a safer option than buying individual equities. They provide more diversification because they hold equities of multiple companies.

What are the 4 types of mutual funds?

Money market funds, bond funds, stock funds, and target-date funds are the four primary types of mutual funds. Each variety has its own set of characteristics, risks and benefits.

What is mutual fund redemption time?

The mutual fund redemption time is 3:30 pm.

Can I withdraw money from a mutual fund anytime?

You can withdraw money from mutual funds anytime as they are liquid investments.

Is mutual fund tax-free?

Only long-term capital gains up to INR 1 Lakh are tax-free.

Are SIP and mutual funds the same?

No, SIP and mutual funds are not the same. SIP is a method of mutual fund investment, whereas a mutual fund is a product of investment.