What is Mutual Fund
In finance, a mutual fund is a kind of investment vehicle that attracts funds from many investors for the purpose of investing in a wide range of assets including but not limited to equities, fixed income securities, and other investment vehicles. The purpose of the mutual fund, which is managed by professional fund managers, is to ensure that investors have a diversified investment strategy which can enable them attain multiple financial objectives such as wealth creation, preservation of capital and generating of income. Mutual funds seem to have become a great deal in the country and are seen as fairly inexpensive mechanisms for retail investors to gain exposure to stock markets without necessarily purchasing individual equities or bonds.
Types of Mutual Funds in India
In India, a large number of investment options, i.e., Mutual funds that meet investor requirements and risk profiles are available. Broadly, they can be classified as
1. What is Mutual Fund Equity
These fund tackles stocks and aims at what is termed as capital appreciation in the long term. Owing to their investment in equities, they are high risk in nature however their returns can also be higher. These include large cap, mid cap, small cap and sectoral funds among others.
2. Debt Mutual Funds
In debt funds, investment is made in fixed income securities. It generally includes government bonds and corporate bonds along with treasury bills. As such, these are perceived as riskier than equity funds. These are generally regarded as safer than equity funds. It would be suitable for investors seeking regular income at minimal risk
3. Hybrid Mutual Funds
Hybrid funds collect investments in equities as well as debt so as to offer a balanced approach towards growth and income. The categories listed in this classification are: balanced fund, aggressive hybrid funds, and conservative hybrid funds.
4. Index Mutual Funds
An index fund is a type of investment product which tracks a particular index, such as Nifty 50 or Sensex. Index funds are passively managed since they are tracking the composition of the index and hence are the least expensive among actively managed funds.
5. Liquid Mutual funds
invest in very short-term money market instruments and act as a safe substitute to keeping one’s money in a savings account. These funds are ideal for short-term goals, such as emergency funds, with high liquidity and low risk.
6. Tax-Saving Mutual Funds (ELSS)
There are equity Linked Savings Schemes, or ELSS, which happen to be equity funds that enjoy tax benefits under Section 80C of the Income Tax Act. These strictly regulated lock-in plans come with a three-year locked-in period and make them attractive for the right blend of tax saving combined with growth.
Benefits of Mutual Fund Investment
Mutual fund investment has numerous benefits. These include
Diversification
Mutual funds diversify the portfolio of investments. By investing into diverse assets, the risk and its negative impacts are spread. A poor-performance asset does not impact the entire portfolio.
Professional Management
Investment decisions for mutual funds are given to professionals. The fund manager with his experience and expertise allows the investor to benefit from professional management without a deep understanding of the market.
Flexibility
Investors can invest in a wide range of mutual fund schemes aligned to their financial goals, risk appetite, or investment horizon.
Liquidity
Most mutual funds except closed-end funds and ELSS offer investment options in terms of buying or selling their units at any time available on the market with high liquidity.
Easy investment option
It is possible to invest in mutual funds either as a one-time lump sum or as an SIP, and therefore, this fund is accessible to every section of the society irrespective of their financial capability.
5 FAQs about Mutual Funds
1. What is mutual fund?
A mutual fund pools money from multiple investors to invest in a diversified portfolio managed by professionals, aiming to achieve various financial goals.
2. What is Mutual Fund investment Minimum Amount Entry Level?
You can start with as little as ₹500 for a SIP or around ₹1,000 for a lump sum, thereby making mutual funds accessible to a whole lot of investors.
3. What is Mutual Fund SIP?
SIP is a process wherein an investor adds a pre-defined amount at intervals. This can help build wealth over time and also in managing market fluctuations.
4. What is mutual funds safty?
The risk differs by type. Equity funds are more volatile with good returns whereas debt and hybrid funds are relatively safer options for the middle returns.
5. Can I withdraw my mutual fund anytime?
Yes, most mutual funds offer easy withdrawal at any time, except ELSS funds. In some cases, some funds may charge a small amount if you’re withdrawing before completing a few years from the investment made in that specific fund.
Association of Mutual Funds in India (AMFI) is a non-profit industry body of the asset management companies (AMCs) of all Mutual Funds in India that are registered with Securities and Exchange Board of India (SEBI).
Thanks