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Mutual Funds

Mutual Funds are collective investments which gather money from different investors to invest in stocks, short-term money market financial instruments, bonds and other securities and distribute the proceeds as dividends. The Mutual Funds are handled by Fund Managers, who has in-depth knowledge about investments. The Securities Exchange Board of India (SEBI) regulates the Mutual Funds in India. The unit value of the Mutual Funds in India is known as net asset value per share (NAV). The NAV is calculated on the total amount of the Mutual Funds, by dividing it with the number of units issued and outstanding units on daily basis.

Benefits of Investing in Mutual Funds

The advantages that MFs offer include professional management, affordability, liquidity and convenience. Besides, they are well regulated, transparent and tax efficient. Having invested in a MF scheme, the investor need not track the Net Asset Value (NAV) or performance on a daily basis. Mutual funds have gained popularity with the investors especially in the last two decades. Following are some of the primary benefits.

Proffesional Financial Experts

Every Mutual Fund scheme has a well-defined objective and behind every scheme, there is a dedicated team of financial experts working with specialized research team. These experts diligently and judiciously study companies, their products and performance, and after thorough analysis, they decide on the best investment option to achieve the scheme’s objective as well as investor’s financial goals.

Small Savings

Mutual Funds generally provide an opportunity to invest with very small investment amount as compared to other Investment Options. You can Start investing in a mutual fund with as little as Rs. 5,000 (Lumpsum) and also as little as Rs. 500 every month in a Systematic Investment Plan (SIP).

Liquidity

You can redeem your investments faster when compared with other forms of savings like the PPF or NSC. You can withdraw or redeem money at the Net Asset Value related prices in the open-end schemes. In closed-end schemes, lock in period is mentioned.

Variety of Investment

Investment options with focus on capitalisation (Large Cap, Mid Cap, Small Cap), Sector (Banking, Pharma, Cement, Auto etc), bonds or a mix of stocks and bonds are available. You can choose a scheme that fits your requirements, and helps you achieve maximum profitability.

Diversify Risk

Mutual funds invest in broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of security/securities.

Types of Mutual Funds

Equity Funds

Equity Funds aim to provide capital growth by investing in shares of companies. Both risk and returns are high but equity funds could be a good investment if you have a long-term perspective and can stay invested for long time.

Debt or Income Funds

The aim of debt or income funds is to provide you with a steady income. These funds generally invest in securities such as bonds, corporate debentures, government securities (G-Sec) and money market instruments. Opportunities for capital appreciation are limited.

Hybrid Funds

Aim of such fund is to provide both growth and regular income as these invest in equities and fixed income securities in the proportion indicated in offer documents. NAVs of such funds are likely to be less volatile as compared to pure equity funds.

Type of Hybrid Funds:

a) Balanced Fund
b) Monthly Income Plan

Money Market Funds

These funds are a safe place to park your money; it is an appealing alternative to bank deposits because they aim to provide liquidity, capital preservation and slightly better return than bank accounts. Return on these funds fluctuates much less compared to other funds as the fund manager invests in Treasury bill (GOI), certificates of deposit (Banks) and commercial paper (Companies).