Beginners Guide to Mutual Funds in India

If you are looking for a way to invest your money and earn returns, mutual funds can be a good option. Mutual funds are pooled investment vehicles that collect money from investors and invest it in various securities such as stocks, bonds, gold, etc. Mutual funds offer several benefits such as diversification, professional management, liquidity, tax efficiency, and convenience. However, mutual funds also have some drawbacks such as fees, risks, and volatility. In this blog post, we will explain the basics of mutual funds in India and help you understand how to choose the right mutual fund for your goals.

What is a Mutual Fund?

 

A mutual fund is a type of financial intermediary that collects money from investors and invests it in a portfolio of securities that match the fund’s objective. The fund manager is responsible for selecting and managing the securities in the portfolio. The investors own units or shares of the fund, which represent their proportionate share of the fund’s assets and income. The value of each unit or share depends on the performance of the underlying securities. The investors can buy or sell units or shares of the fund at the prevailing net asset value (NAV), which is calculated by dividing the total value of the fund’s assets by the number of units or shares outstanding.

 

Types of Mutual Funds in India

 

Mutual funds in India can be classified into various types based on different criteria such as structure, asset class, investment objective, risk profile, etc. Some of the common types of mutual funds in India are:

• Open-ended funds: These are funds that allow investors to buy or sell units or shares at any time without any restriction. They do not have a fixed maturity date or a fixed number of units or shares. They are flexible and liquid.
• Closed-ended funds: These are funds that have a fixed maturity date and a fixed number of units or shares. They do not allow investors to buy or sell units or shares after the initial offer period. They are less flexible and liquid than open-ended funds.
• Interval funds: These are funds that combine the features of open-ended and closed-ended funds. They allow investors to buy or sell units or shares at predetermined intervals, such as quarterly, half-yearly, or yearly.
• Equity funds: These are funds that invest predominantly in stocks or equity-related instruments. They aim to provide capital appreciation over the long term. They are suitable for investors who have a high-risk appetite and a long investment horizon.
• Debt funds: These are funds that invest predominantly in bonds or debt-related instruments. They aim to provide regular income and capital preservation over the short to medium term. They are suitable for investors who have a low to moderate risk appetite and a short to medium investment horizon.
• Hybrid funds: These are funds that invest in a mix of equity and debt instruments. They aim to provide a balance of growth and income over the medium to long term. They are suitable for investors who have a moderate risk appetite and a medium to long investment horizon.
• Index funds: These are funds that replicate the performance of a specific index, such as Nifty 50, Sensex, etc. They aim to provide returns that match the returns of the index. They have low fees and low tracking error.
• Exchange-traded funds (ETFs): These are funds that trade on stock exchanges like stocks. They track the performance of an index, a commodity, a currency, etc. They offer transparency, liquidity, and low fees.
• Sectoral funds: These are funds that invest in a specific sector or industry, such as banking, IT, pharma, etc. They aim to benefit from the growth potential of that sector or industry. They have high risk and high return potential.
• Thematic funds: These are funds that invest in a specific theme or trend, such as infrastructure, consumption, ESG, etc. They aim to benefit from the opportunities arising from that theme or trend. They have high risk and high return potential.
• ELSS (Equity Linked Savings Scheme) funds: These are equity funds that offer tax benefits under Section 80C of the Income Tax Act. They have a lock-in period of three years from the date of investment. They are suitable for investors who want to save tax and earn long-term returns.

 

Get your KYC Done

KYC stands for Know Your Customer. It is a process of verifying the identity and address of a customer who wants to avail certain financial services or products. KYC helps to prevent fraud, money laundering, and identity theft. KYC also helps to ensure that the customer is eligible and suitable for the service or product they are applying for.

To get your KYC done, you need to provide some documents and information to the service provider or financial institution. The documents may include your identity proof (such as Aadhaar card, PAN card, passport, etc.), address proof (such as utility bill, bank statement, etc.), and a recent photograph. The information may include your name, date of birth, gender, occupation, income, etc.

The service provider or financial institution will verify your documents and information and update your KYC status in their records. Once your KYC is done, you can access the service or product you applied for without any hassle. You may also get some benefits such as lower interest rates, higher limits, faster approvals, etc.

Get Your Mutual Fund Investment KYC Done is important and mandatory for many financial services and products. It helps to protect you and the service provider or financial institution from any risks or frauds. It also helps to comply with the regulatory norms and guidelines. Therefore, you should get your KYC done as soon as possible and keep it updated whenever there is any change in your details.

How to Choose a Mutual Fund?

Mutual funds are a popular way of investing in the stock market, bonds, and other assets. They offer diversification, professional management, and convenience to investors. But how do you choose a mutual fund that suits your needs and goals? Here are some tips to help you:

1. Define your investment objective and time horizon. What are you investing for and how long can you stay invested? Different mutual funds have different objectives, such as growth, income, or tax saving. They also have different risk levels, ranging from low to high. Depending on your goal and risk tolerance, you can choose a mutual fund category that matches your profile. For example, if you are looking for long-term capital appreciation and can tolerate high volatility, you can invest in equity funds. If you are looking for regular income and stability, you can invest in debt funds.
2. Compare the performance and fees of different mutual funds. Once you have decided on a mutual fund category, you can compare the performance of different schemes within that category. You can look at the past returns, consistency, benchmark comparison, and ratings of the schemes. You can also check the expense ratio, exit load, and other charges of the schemes. These fees can affect your net returns over time. You should choose a mutual fund that has a good track record of performance and charges reasonable fees.
3. Know the fund manager and investment strategy of the mutual fund. Another factor to consider while choosing a mutual fund is the fund manager and his/her investment strategy. The fund manager is responsible for selecting the securities and managing the portfolio of the scheme. You should look at the fund manager’s experience, qualifications, and style of investing. You should also understand the investment strategy of the scheme, such as its asset allocation, sector allocation, market capitalization, and investment philosophy. You should choose a mutual fund that has a competent fund manager and a clear investment strategy.
4. Diversify your portfolio across different mutual funds. One of the benefits of investing in mutual funds is diversification. By investing in different mutual funds, you can reduce your overall risk and enhance your returns. You should diversify your portfolio across different asset classes, such as equity, debt, gold, etc. You should also diversify within each asset class, such as across different sectors, themes, styles, etc. You should choose mutual funds that complement each other and suit your overall asset allocation.
5. Stay focused on your long-term goals and review your portfolio periodically. Investing in mutual funds requires patience and discipline. You should not get swayed by short-term market fluctuations or chase unrealistic returns. You should stick to your investment plan and stay focused on your long-term goals. You should also review your portfolio periodically to check its performance and suitability. You may need to rebalance your portfolio or switch your funds if there are any changes in your goals, risk profile, or market conditions.

Choosing a mutual fund is not a one-time decision but an ongoing process. By following these tips, you can make an informed choice and achieve your financial goals with mutual funds.