Mutual Funds are the best and the simplest way to invest
What exactly are Mutual Funds and how do they work?
Mutual Funds offer you a way to invest your money through the help of investment experts.
What exactly are Mutual Funds and how do they work?
Mutual Funds offer you a way to invest your money through the help of investment experts.
Mutual Fund, very simple put, is many investors pooling their money. This pooled money is handed over to a fund manager to manage and grow systematically.
Depending on the type of mutual fund, this pooled money is then invested by the fund manager in either shares, bonds, money market instruments or a mix of all of them.
Total pooled amount is divided into units. When you buy a mutual fund of certain amount, you are allotted units of mutual funds which is equal to amount divided by the price. The price of a unit is called Net Asset Value or NAV.
Over time, as the price of the underlying investment securities (shares and/or bonds) increases, the NAV of your mutual fund unit also increases. When you sell at a higher NAV, you end up making money.
Investing in mutual funds is very simple and easy. More so if you opt for online investments. Learn more about online investment in mutual funds.
If you are KYC compliant, you can get started immediately. If you are not KYC compliant, you will need to complete the KYC process which your advisor should be able to help you out with.
Here is a comprehensive guide to help you get started with Mutual Funds - How to invest in mutual funds in India: A Beginner’s Guide.
Further Reading:
What are different types of Mutual Funds
Mutual Funds come in various shapes and sizes. And contrary to the popular perception, Mutual Funds do not just invest in equity markets.
What are different types of Mutual Funds
Mutual Funds come in various shapes and sizes. And contrary to the popular perception, Mutual Funds do not just invest in equity markets.
There are mutual funds that invest the money in equity shares. The returns in these funds are linked to equity markets and hence are volatile in short term.
Investment Objective:
The primary objective of equity mutual fund is to deliver capital appreciation over long term allowing investor's money to grow and compound at rates higher than inflation.
Suited For:
Anyone who is looking to grow their money at rates higher than inflation and has a long-term horizon. Best suited for acheiving long-term goals like retirement.
Sub Categories:
Large Cap Funds, Mid Cap Funds, Mutli Cap Funds, Small Cap Funds and so on. More details here - How SEBI’s recategorization changed Equity Mutual Fund categories.
Taxation:
If units are sold within 1 year of purchase, a Short-term Capital Gains Tax (STCG) of 15% is applicable. If sold after 1 year, Long-term Capital Gains Tax (LTCG) of 10% is applicable.
There are mutual funds that invest the money in interest earning instruments like government bond, corporate bonds etc. These are relatively less risky as compared to equity mutual funds.
Investment Objective:
Depending on the type, the objective of debt fund is to yield stable interest income (based on credit risk and duration) and/or allow capital appreciation from changes in interest rate.
Suited For:
Anyone looking to earn stable returns in short to medium term (3-5 years). Short-term investors can also use debt funds to take interest rate calls. Also, used by long-term investors to add diversification to their portfolio.
Sub Categories:
Duration (from ultra short to long) Funds, Corporate Bond Funds, Dynamic Bond Funds, Banking and PSU Funds, Gilt Funds. More details here - SEBI's recategorisation of Debt Mutual Funds.
Taxation:
If units are sold within 3 years of purchase, they are taxed at your personal income tax rate. If sold after 3 years, Long-term Capital Gains Tax (LTCG) of 20% is applicable along with indexation benefits.
There are mutual funds that invest in highly liquid money market instruments like Bank FDs, commercial papers, treasury bills. The maturity of the instruments have to be less than 90 days.
Investment Objective:
As the name suggests, the objective of liquid funds is to provide easy liquidity and returns with extremely low risk. The idea is to generate stable accrual returns with high liquidity and zero to low risk.
Suited For:
Anyone looking to park their money for very short-term, liquid funds offer a better alternative than your savings bank account. Also used by corporates and institutions for their daily cash management.
Taxation:
If units are sold within 3 years of purchase, they are taxed at your personal income tax rate. If sold after 3 years, Long-term Capital Gains Tax (LTCG) of 20% is applicable along with indexation benefits.
These are similar to liquid funds in terms of risk and return profile. These funds generate returns by spotting arbitrage opportunities in the market. They are more tax efficient than liquid funds as they are classified under equity category.
Investment Objective:
Objective is to generate income through arbitrage opportunities by taking fully hedged equity positions so that the risk is minimal.
Suited For:
Anyone looking to park their money for very short-term. While arbitrage funds are more tax efficient than liquid funds, they have an exit load of upto 1 month and lower liquidity.
Taxation:
If units are sold within 1 year of purchase, a Short-term Capital Gains Tax (STCG) of 15% is applicable. If sold after 1 year, Long-term Capital Gains Tax (LTCG) of 10% is applicable.
As the name suggests, Hybrid mutual funds invest in both debt and equity instruments. The idea is to achieve diversification and reduce the risk in case of equity dominant hybrid and provide extra return boost in debt dominant hybrid.
Investment Objective:
Depending on the risk profile of the fund, objective ranges from providing long-term appreciation of capital at relatively lower risk to generating stable interest income with extra equity kicker.
Suited For:
Conservative equity investors looking to grow their capital at relaitively lower risk. Aggressive debt investors looking to give a kicker to their returns through small participation in equities.
Sub Categories:
Conservative Hybrid Funds, Balanced Funds, Aggressive Hybrid Funds, Balanced Advantage Fund, Multi Asset Allocation
Taxation:
Depending on the sub category, the scheme will qualify for either equity or debt taxation.
These are Equity mutual funds that offer tax benefits to investors under section 80 C of the Income Tax Act. The risk and return profile is same as equity mutual funds.
Investment Objective:
The primary objective is to deliver capital appreciation over long term allowing investor's money to grow and compound at rates higher than inflation.
Suited For:
Suited for investors with long-term horizon looking to grow their capital and at the same time avail the tax incentive every year.
Taxation:
If units are sold within 1 year of purchase, a Short-term Capital Gains Tax (STCG) of 15% is applicable. If sold after 1 year, Long-term Capital Gains Tax (LTCG) of 10% is applicable.
Why should you invest in Mutual Funds?
Mutual Funds offer a perfect balance of long-term returns, lower risk, fitment to your financial needs and liquidity.
Why should you invest in Mutual Funds
Mutual Funds offer a perfect balance of long-term returns, lower risk, fitment to your financial needs and liquidity.
In long-term, no other asset class has provided better returns than equity. Equity as an asset class is the best wealth builder.
If you are looking to invest for long-term, equities are your best bet. And what better way to invest in equities than letting a professional fund manager do it for you.
The beauty of mutual funds is that there is a type of mutual fund for every type of financial need and investment objective.
Looking to save up for retirement or buying a house in 10 years or planning to go on a vacation in 6 months or saving up for your child's education? There are mutual funds available for all of these.
Another important aspect of mutual funds is that they are highly liquid. You can sell your units anytime and you get your money back.
Liquidity is important. Consider Real Estate for example. What if you are not able to sell your property investment at the time you want money? No such case with Mutual Funds.
Investing in mutual funds is super easy and simple. And if you plan to do it through an online platform, its also completely paperless.
Most of us do not have the required expertise to participate in equity markets. Mutual Funds give us a way by leveraging the expertise of a fund manager. You don't have to actively manage your investments.
Who should invest in Mutual Funds?
No matter which phase of life you are in and what your investment objectives are, Mutual Funds can help you.
Who should invest in Mutual Funds?
No matter which phase of life you are in and what your investment objectives are, Mutual Funds can help you.
When you start working you can start investing to create financial discipline. As a working individual, you are responsible for managing your expenses. And if there is no discipline in managing expenses, you are prone to splurging your money on unwanted things. Hence, it is highly recommended that you start planning for the milestones of your life as soon as you start earning.
Going from one to two comes with added financial responsibilities. Now is the time when people start planning for the additional expenses that come along the way. A new house, a car, more vacations. Mutual Funds can help you create seperate goals for each of your big-ticket consumption items.
The next milestone that is financially draining is becoming a parent. Right from hospital bills to diapers to school fees, you require tremendous financial ability to pass through this long phase. Which is why it is recommended to start investing at least 5-7 years in advance for this. Again, proper investing through mutual funds can help you ride through the early parenting expenses.
Being a parent is tough. You have to bear the expenses of your child’s education and marriage in quick succession in their 20’s. This is again financially intensive. You should plan for these two important milestones right from the moment you start having a child. It is recommended to invest for these two financially intensive milestones at least 15-20 years in advance.
Retirement is the time to relax. But before you do, you need to put yourself in a financial position that lets you relax. The first thing is to not be a financial burden on your children and sustain yourself in the final phase of life. Mutual Funds are your best bet to achieve your retirement goals. All these pointers and nuances have been comprehensively covered in an e-book called The Ultimate Retirement Planner.
Well, well, well. Investments don’t stop when you retire. When you retire with a corpus, you better plan your post retirement life with it. Keeping that corpus in your savings bank account is only going to make sure that the corpus doesn’t last as long as you do! Again, Mutual Funds can help you generate a stable income during your post-retirement years. Check out Best Monthly Income Plans for Senior Citizens.
Finpeg is your one-stop destination for investing in Mutual Funds
For someone new to mutual funds, starting online can appear to be a huge task. But don't worry. We take care of your entire investing journey. And there is a dedicated relationship manager by your side.
And it doesn't end there. Our cutting-edge research and intelligent investment solutions provide 3% - 4% extra returns than a regular SIP or lump sum investment.
Finpeg is your one-stop destinationfor investing in Mutual Funds
For someone new to mutual funds, starting online can appear to be a huge task. But don't worry. We take care of your entire investing journey. And there is a dedicated relationship manager by your side.
And it doesn't end there. Our cutting-edge research and intelligent investment solutions provide 3% - 4% extra returns than a regular SIP or lump sum investment.
SIPs are a great way to invest in mutual funds but NOT the best way.
Using intelligent asset allocation and portfolio optimization techniques, AlphaSIP offers much better returns than your plain SIP investments.
Be it a generic NIFTY Index or a portfolio of actively managed funds, AlphaSIP has consitently generated 3% - 5% alpha over regular SIPs. Learn more about AlphaSIP.
Investing lump sum amount into equity mutual fund is a risky bet. You don't know how markets will play out and how to time your entry.
Finpeg Lump Sum strategy uses intelligent asset allocation and portfolio optimization techniques to deliver 3% - 5% alpha over plain lump sum investments. Plus, a phenomenal risk reduction. Learn more about Finpeg Lump Sum Strategy.
Mutual Fund jargons, de-mystified
Mutual Fund jargons, de-mystified
Company that produces the mutual fund schemes. These are registered with SEBI. An AMC offers multiple mutual fund schemes.
Asset Under Management (AUM) of a scheme is the total market value of all the assets that a scheme holds.
NAV is total AUM minus a schemes liabilities divided by total number of units. This is the price of unit at which you buy/sell mutual fund.
Fund manager is responsible for managing your money. He/she takes the final decision regarding the securities that the scheme invests in.
TER is the total cost associated with managing the fund. This includes fund manager's salary, distribution cost and other operational costs.
Amount charged by the scheme when one redeems. Expressed as a percentage, your selling NAV is reduced by that percentage.
A version of the same scheme where there is no distribution cost in the TER. To that extent, TER is lower and hence your returns are higher.
In regular plans, TER includes the brokerage paid by the AMC for distributing the scheme. TER is higher than direct plans by that amount.
These are options in which the primary objective is the growth of the capital invested. There is no dividend declared in growth option.
These schemes declare dividend at fixed frequency and the dividend is then reinvested back. NAV adjusts by the amount of dividend paid.
These schemes declare dividend at fixed frequency and the dividend is paid out. NAV adjusts by the amount of dividend paid.
These are schemes where investors can buy or sell the units of the scheme on a continual basis.
One can invest in such schemes only during the time of initital offering. Exit options are also restricted and varies from scheme to scheme.
This is the first subscription offer made by AMC when a new scheme is launched.
Moving from units of one scheme to another within the same AMC. It is same as selling units of scheme 1 and buying units of scheme 2.
A method of investing in mutual funds where a fixed amount of money is invested at a fixed frequency with monthly being the most common.
This is a method where a fixed amount is switched from one scheme to another scheme at a fixed frequency.
This is a method where a fixed amount is redeemed from the scheme at a fixed frequency.
When you invest the entire amount in one go, it is called lump sum investment.
Tax applied to your gains when you sell mutual funds after long term. 10% if sold after 1 years on Equity and 20% if sold after 3 years on debt.
Tax on your gains when you sell funds in short term. 15% if sold before 1 year for Equity and normal income tax rate if sold before 3 years on debt.
In debt mutual funds, if you hold for more than 3 years, your capital gains are calculated after adjusting for inflation.