Handpicked Mutual Fundsfor Everyone!

What are

mutual funds?

Mutual fund is a type of investment that invests money pooled from multiple investors in a diversified portfolio managed by a professional fund manager. Mutual Funds invest in multiple assets like stocks, bonds, commodities, etc. and simplify investments for retail investors by investing on their behalf.

Since retail investors do not hold the expertise or the time to continuously study the market conditions, it is the fund manager who takes the responsibility to manage risk and safeguard capital investments made through Mutual Funds. The fund manager is a qualified finance professional - certified by SEBI to undertake portfolio management. S/he takes into account the risk tolerance level, investment horizon and market conditions before making investment decisions. This is what makes Mutual Funds a safer investment option for retail investors as compared to direct equity.

When you invest in a mutual fund, you own shares or units of the fund, not the underlying assets. These units represent your proportional ownership of the fund's holdings. Think of mutual fund units as shares in a collective investment. For example, imagine four friends who want to buy a box of 12 chocolates, but they each have only ₹10. They pool their money, buying the box for ₹40. Each friend now owns 3 chocolates or 3 units of the box, based on their ₹10 contribution. The cost of one unit is calculated by dividing the total cost (₹40) by the total number of units (12), resulting in ₹3.33 per unit. When you multiply the number of units (3) by the cost per unit (₹3.33), you get the initial investment of ₹10. Each friend is now a unit holder in the box of chocolates, collectively owned by all of them.

Similar to stocks which have a trading price, a mutual fund unit has a Net Asset Value (NAV). The NAV represents the market value of all the assets held by a fund on a specific day, adjusted for expenses and charges, plus accrued income, divided by the total number of units in the scheme. Whenever you make an investment in mutual funds, you are allocated the number of units based on the NAV prevailing for that day. For example - If the NAV of a mutual fund is Rs. 20 today and you invest Rs. 10,000 in the mutual fund - you will receive 500 units of the fund. (Rs. 10,000 divided by 20)

How to invest in

Mutual Funds?

You can invest in Mutual Funds online as well as offline through your Broker or by directly approaching the Asset Management Company (AMC). To invest in Mutual Funds, all you need is a PAN Card, an Aadhaar Card, and a Bank Account Proof.

Investors can choose the method that aligns with their preferences, investment goals, and level of involvement. Some of the most popular ways to invest in mutual funds are:

Similar to the concept of buying chocolates collectively, you can directly invest in mutual funds by approaching the fund house or asset management company. In this case, you invest directly with the fund without involving intermediaries like brokers or advisors. While direct investments eliminate distribution commission, managing all your investments separately with different AMCs might become a hassle for you.

Many investors prefer the convenience of online platforms, much like online shopping. You can choose to invest in mutual funds through various online portals and mobile apps, which provide a user-friendly interface and access to a wide range of funds. Online Broking platforms give you an added advantage of expert research to select the right funds as per your investment goals and risk profile along with the ease of managing all your investments in one place

For those who prefer guidance and expert advice, financial advisors act as consultants who help you select the right mutual funds based on your financial goals and risk tolerance. They guide you through the investment process. Many brokers like Motilal Oswal provide the service of financial advisory for free and also offer personal financial planning sessions to align your investments with your goals.

Robo-advisors are automated investment platforms that use algorithms to recommend and manage a portfolio of mutual funds based on your risk profile and investment objectives. It's a technology-driven way to invest with minimal human intervention. While robo advisory platforms remove human bias and errors from investing, they might lack a human touch and might not be right for every investor.

Based on the frequency of investments you choose, Mutual Fund Investments can be classified into two categories - Systematic Investment Plans (SIP) and Lumpsum

A Systematic Investment Plan (SIP) is a practice of investing where you regularly contribute a fixed amount every month to buy mutual fund units. This disciplined approach enables investors to benefit from rupee cost averaging and the power of compounding, as their investment buys more units when prices are low and fewer units when prices are high. SIPs make it easier for individuals to enter the stock market and create a habit of consistent investing over time.

A lumpsum mutual fund investment refers to a one-time, single large investment made by an individual into a mutual fund. Unlike SIP (Systematic Investment Plan), where money is invested periodically, a lump sum investment involves investing a substantial amount of capital into the fund at a single go. This approach is often used by investors who have a significant sum of money available for investment at a particular time, and it can be influenced by market conditions or personal financial situations.

What are different types of

Mutual Funds?

Different types of Mutual funds include equity funds, debt funds, hybrid funds, theme-based (sectoral) funds, index funds, Tax-saver (ELSS) funds etc. Different types of Mutual Funds make it possible for everyone to invest as per their risk appetite and return expectations.

Equity funds are those which primarily invest in stocks or equities. The goal is to achieve capital appreciation over the long term. They offer the potential for higher returns but also come with higher risk due to stock market volatility.

Debt funds are those which invest in fixed-income securities such as government bonds, corporate bonds, and municipal bonds. They are known for providing regular interest income. They are typically considered to have lower risk compared to equity funds.

Money market funds are the type of mutual funds which invest in short-term, highly liquid, and low-risk securities like Treasury bills and commercial paper. These funds focus on preserving capital and providing safety and liquidity. They are a low-risk option for parking funds.

Hybrid funds, also known as balanced funds, are the type of mutual funds which combine investments in both stocks (equities) and bonds (fixed income). They aim to strike a balance between growth and income, making them suitable for investors seeking a middle-ground approach.

Index funds are those funds which aim to replicate the performance of a specific market index, like the BSE S&P 500 or the Nifty 50. These funds typically hold the same stocks in the same proportions as the index they track. They are known for their low expenses and aim to match the returns of the underlying index.

Sector funds, also known as theme-based funds, are those types of Mutual Funds which invest in a specific industry or sector of the economy, such as technology, healthcare, or energy. They provide an opportunity to focus on a particular area of interest or expertise, but they can be riskier due to their lack of diversification.

Equity Linked Savings Schemes (ELSS) are a category of mutual funds in India that offer tax benefits under Section 80C of the Income Tax Act. ELSS funds primarily invest in equities, providing the potential for capital appreciation. They have a lock-in period of three years, the shortest among all tax-saving instruments. ELSS funds are popular for tax planning as they allow investors to save on taxes while participating in the stock market, offering the dual benefit of potential returns and tax deductions.

How to choose a

good mutual fund for investment?

Choosing a good mutual fund for investment is a crucial decision that depends on your financial goals, risk tolerance, and investment horizon. To choose the right mutual fund, one should match one's risk appetite and investment goals with the objectives of the mutual funds under consideration.

Here's a step-by-step guide to help you select the right mutual fund:

Start by identifying your investment objectives. Are you saving for retirement, buying a house, funding your child's education, or simply building wealth? Your goals will determine the type of mutual fund that aligns with your needs.

Assess your risk tolerance, which is your ability and willingness to withstand market fluctuations. Understanding your risk profile will help you choose the right category of mutual funds (e.g., equity, debt, or balanced) that matches your comfort level. Investors should find funds suited to their risk tolerance to ensure their investments align with their comfort level and financial goals

Your investment horizon is the length of time you plan to hold the investment. Longer horizons may allow you to take on more risk, while shorter horizons may require a more conservative approach. Ensure the mutual fund aligns with your investment timeline and below is a guide on matching the right category of funds with various investment horizons.

Short-term investments typically have a duration of up to one to three years. Debt funds are ideal for short-term investments, because these primarily invest in fixed-income securities like government and corporate bonds, money market instruments, and certificates of deposit. They are known for capital preservation and generating regular income. When you have short-term financial goals or need to park funds temporarily, investing in debt funds can provide stability and liquidity, ensuring that your money is relatively safe and accessible when you need it.

Mid-term investments typically have a duration of three to five years. Hybrid funds, also known as balanced funds, combine both equity and debt components, which strike a balance between capital appreciation (equity) and capital preservation (debt). Investing in hybrid funds for mid-term goals allows you to benefit from the potential growth offered by equities while maintaining a degree of stability through the debt portion. This balance aligns with mid-term financial objectives, such as saving for a down payment on a house or funding education expenses.

Long-term investments typically span five years or more, often extending to a decade or longer. Equity funds are better suitable for these types of investment because these funds primarily invest in stocks and are known for their potential for high returns but also higher volatility. Over extended periods, equities tend to outperform other asset classes. They provide the growth needed to beat inflation and generate substantial wealth.

In summary, aligning the duration of your investment with the appropriate mutual fund category is essential for achieving your financial objectives. It ensures that your investments match your risk tolerance, liquidity needs, and growth expectations. It's also important to periodically review and adjust your investment strategy as your goals and circumstances change over time

Understand the various types of mutual funds, such as equity funds, debt funds, hybrid funds, and more. Each category has distinct characteristics, so select the one that suits your goals and risk tolerance.

Diversification can help manage risk. Look for mutual funds that spread investments across a wide range of assets or securities, reducing exposure to a single company or sector. Along with seeking well diversified mutual funds, you should also ensure that your overall mutual fund portfolio is diversified across various mutual funds with asset allocation as per your risk appetite and your investment goals.

While past performance is not indicative of future results, reviewing a fund's historical performance can provide insights into its track record. Compare a fund's performance to relevant benchmarks and other funds in the same category. Look for mutual funds that have demonstrated consistency in performance and have consistently adhered to their investment objectives.

Pay attention to the expense ratio, which represents the annual costs of managing the fund. Lower expenses can have a significant impact on your returns over time.

Research the fund manager's experience and track record. An experienced and skilled fund manager can make a difference in the fund's performance.

Review risk metrics, such as standard deviation and beta, to understand a fund's volatility and its sensitivity to market movements. This information can help you assess if the fund aligns with your risk tolerance.

Different mutual funds may have varying tax implications. For example, equity funds may have different tax treatment compared to debt funds. Understand the tax implications of your investment.

If you are unsure about your investment choices, consider consulting a financial advisor. They can provide personalized guidance based on your financial situation and goals.

After selecting a mutual fund, periodically review its performance and ensure it continues to align with your goals. Make adjustments if necessary.

How do Mutual Funds

work in India?

Mutual funds work by pooling money from multiple investors and using that collective pool of funds to invest in a diversified portfolio of stocks, bonds, or other securities. Here's a detailed explanation of how mutual funds operate:

An asset management company (AMC) or fund house establishes a mutual fund. Each mutual fund has a specific investment objective and strategy outlined in its offering document.

The mutual fund is managed by a professional fund manager or a team of managers. Their responsibility is to make investment decisions on behalf of the fund's investors.

Investors, like you, purchase shares or units of the mutual fund. These shares represent your proportional ownership of the fund's holdings. When you invest, you become a shareholder in the mutual fund.

The fund manager uses the money pooled from investors to create a diversified portfolio. This portfolio includes a mix of stocks, bonds, money market instruments, or other securities, depending on the fund's objectives.

Diversification is a key feature of mutual funds. It helps spread risk because if one investment performs poorly, gains in other investments can offset those losses.

Fund managers are responsible for researching, selecting, and managing the assets in the portfolio. They make buy and sell decisions based on market conditions and the fund's objectives.

The NAV is the price at which investors can buy or sell mutual fund units. It is calculated at the end of each trading day and is based on the fund's total assets minus its liabilities. NAV is the per-unit price of the fund.

Mutual fund shares are highly liquid. Investors can typically buy or sell them on any business day at the NAV price, providing liquidity and ease of entry or exit.

Mutual funds may distribute dividends, interest income, and capital gains to shareholders. These distributions can be reinvested in the fund or taken as cash.

Mutual funds charge fees, including management fees and operating expenses. These fees are expressed as an expense ratio and can impact your overall returns.

Mutual funds in India are regulated by the Securities and Exchange Board of India (SEBI). Regulations ensure transparency and compliance with industry standards.

Investors can choose from various types of mutual funds, each with its own investment focus and strategy. The type of mutual fund you select should align with your financial goals, risk tolerance, and investment horizon