Mutual Funds
A Mutual Fund is a professionally managed investment fund that collects money from many investors to purchase securities. These investors may be retail or institutional in nature.
Advantages of investing through mutual fund
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Professional management
Mutual funds are managed by fund managers of AMCs with the team of members with expert knowledge to minimize risks and maximize returns for investors, which is very difficult to an individual person due to lack of financial knowledge.
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Diversification of risk through asset class
Mutual funds invest in number of securities in equity funds. Also available through different asset class, equity funds, debt funds money market funds, index funds fund of funds, gold, real estate etc.
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Affordable & convenient
Investment amount is very low so anyone can start investment at an affordable price and with their own convenience lump sum and or SIP
Tax benefit
Some funds are also available for tax benefit under section 80 CC of Income Tax Act 1961
Liquidity
Withdrawal of money available at anytime other than ELSS schemes and some close ended funds with lock in period.
SIP options
Systematic Investment Plan (SIP) allows investment with very low amount as low as Rs 500/-pm which gives rupee cost averaging benefit and minimize the risk with long term perspective.
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Transparency and Regulations
Like RBI governs all banks in India, SEBI regulates all mutual funds to protect the interest of investors. It provides 100% transparency with the help of NAV declarations on daily basis & monthly portfolio declarations.
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Types of Mutual Funds
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Equity Fund- Equity funds are those invests in stocks and securities of private companies which involves high risk with possibilities of higher returns . There are various options available as per category e.g large cap, midcap, small cap , sector funds etc
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Debt Fund- These are funds that invests in debt instruments like debenture, government bonds and other fixed income assets and are proportionately considered as safe investment and gives stable returns.
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Hybrid Fund-These are funds invests in mix of asset class of equity and debt components. Risk and returns are in the proportion with mixture of equity and debt and are popularly known as balanced funds.
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ELSS fund- These funds invests 100% in equities and are available for tax benefits under section 80CC of Income Tax Act with lock in period of 3 years. Those are considered as very high risk funds.