Mutual Fund

Investor can redeem units of open-ended mutual fund schemes to meet financial need on any business/working day at the NAV of the day of your redemption. So, depending on the type of mutual fund you have invested in, you would receive your invested funds in your bank account in 3-4 days. However, close-ended funds allow redemption only at the time of the maturity of the mutual fund. Similarly, ELSS mutual funds have a lock-in period of three years.

Mutual fund returns are not assured by mutual funds and are subject to market risks. But over the long term, equity mutual funds have the potential to deliver double-digit returns annually. Debt funds can also offer higher returns as compared to bank deposits.

You may have heard the saying: Don’t put all your eggs in one basket. This is a famous mantra to remember when you invest your money.Mutual funds typically invest in a range of companies and industries. This helps to lower your risk if one company fails..

Investment of up to Rs. 1,50,000 in ELSS mutual funds qualifies for tax benefit under section 80C of the Income Tax Act, 1961. Mutual fund investments, when held for a longer term, are tax-efficient.

For many investors, it could be more costly to directly purchase all of the individual securities held by a single mutual fund. By contrast, the minimum initial investments for most mutual funds are more affordable.

Every mutual fund has a Scheme Information Document readily available on the fund house’s website that can give you all the details about its holdings, fund manager etc. In addition, the portfolio investment value (NAV) is published daily on the AMC site, AMFI site for investors to track the portfolio of the mutual fund.

In India, Mutual Funds are regulated by the capital markets regulator, Securities and Exchange Board of India (SEBI) under SEBI (Mutual Funds) Regulations, 1996. SEBI has laid down stringent rules and regulations keeping investor protection, transparency with appropriate risk mitigation framework and fair valuation principles.

• Active Mutual Funds or actively managed mutual funds are those wherein the fund manager continuously keeps looking for ways to generate better returns. The fund manager sells and buys stocks whenever he sees an opportunity.
• Passive Mutual Funds or passively managed funds are those wherein the fund manager does not actively manage the portfolio. The portfolio reflects a specific index, i.e., the money is allocated in the exact same way as it is done in the underlying index. Any change in the portfolio is done only if there is a change in the index composition

Equity mutual funds:

Equity funds invest at least 65% of their portfolio in equities. It means these funds take high risks, and they also have the potential to generate stunning returns.
Even among equity funds, there are different types of funds that vary in terms of the risk they take and the kind of returns they aim to generate.

For instance, many equity funds invest in stocks of a specific type of market cap. Examples of such schemes include Large Cap, Mid Cap, Large & Mid Cap, and Small Cap. Similarly, some funds invest in a specific sector like technology or banking. These funds are called Sectoral Funds. And then, there are categories of funds that invest across market caps and sectors. It includes funds like Flexi Cap Funds, Focused Funds, and Multi Cap Funds, among others.

Debt Mutual Fund:

These mutual funds invest in fixed-income instruments like corporate bonds, government bonds, etc. Typically, debt funds offer more stable returns than equity funds. Therefore, they are considered to be less risky than equity funds.However, not all debt funds carry the same risk. 16 debt fund categories vary based on the level of risk they take and the rate of return they aim to generate. Thus, different categories are suitable for different purposes.

For example, Liquid funds invest in a portfolio of debt papers that mature within 91 days. Similarly, Ultra short duration funds invest in debt securities such that the average duration of the scheme’s portfolio is 3-6 months. Then there are Low duration funds that invest in debt papers such that the average duration of the scheme is 6-12 months.There are also debt funds that invest in debt papers of longer maturity and therefore carry higher interest rate risk. Take, for example,’ Gilt Fund‘ Gilt Fund With a 10-Year Constant Duration.

However, not all categories of debt funds have their tenure defined. For example, there are Corporate Debt Funds that invest more than 80% of their assets in corporate bonds. Likewise, Banking and PSU funds invest in debt instruments such as securities of banks and public sector companies that comprise 80% of their corpus.

Hybrid mutual funds:

These schemes primarily invest in a combination of debt and equity. So, hybrid funds offer the benefit of asset allocation and help you diversify your portfolio. For example, allocation to equity increases the chances of higher returns, while allocation to debt helps to stabilize the investments against extreme market turbulence. As a result, the portfolio’s overall risk is decreased.

There are several categories of hybrid funds with different mixes of debt and equity. For example, with Aggressive Hybrid funds, the equity allocation can go up to 80% and debt up to 35%. Then, there are Conservative Hybrid funds, which can allocate a maximum of 25% to equities and 90% to debt.

Similarly, there are Balanced Advantage funds (also known as Dynamic Asset Allocation funds) where the fund manager has the full liberty to dynamically modify the fund’s asset allocation amid changing market conditions. And then there are Multi Asset Allocation funds, which invest in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes.

Growth Option:If you choose the Growth Option of any mutual fund scheme, the profits made by the scheme would be invested back into the scheme for which the NAV (net asset value) or the price of each mutual fund unit goes up. Similarly, if there is a loss, the NAV goes down. Thus, in order to get any profit from the growth option of any mutual fund scheme, you would need to redeem the units.

Dividend Option:If you choose the Dividend Option of any mutual fund scheme, the profits made by the scheme would be distributed to the investors at regular intervals (monthly, quarterly, or annually). The profit is deducted from the NAV (net asset value), from the price of each mutual fund unit.

• Sector funds: These are theme-based mutual funds that invest in specific sectors comprising only a few stocks. Even though they deliver great returns, the risk factor is quite high. This is why it is advisable for investors to be aware of different sector-related trends.
• Index funds: Such types of mutual funds mainly invest in instruments representing a specific index. It involves identifying stocks and corresponding ratios in the market index and, based on that, investing funds in a similar amount in the same kind of stocks.
• International funds : International funds or foreign or overseas mutual funds are schemes that invest in companies listed on foreign stock exchanges. These funds offer geographical diversification that helps investors reduce the investment risks associated with their home country.
• Global fund :  Global funds are a category of mutual funds that invests in companies from all over the world. However, they are different from international funds. The names could be confusing. But unlike international funds that invest in all countries except the country that the investor resides in, global funds invest in all countries around the globe with no exception.
• Exchange Traded Fund (ETF) : ETFs are a type of mutual fund that can be traded on the stock exchange in real time just like stocks. ETFs belong to the index funds family and while the majority of ETFs are passively managed, there are actively managed ETFs as well

• Low-risk funds: Investors looking for investment options that do not make them suffer due to monetary loss can opt for this particular type. The returns are also on the lower side because of the low risk associated with these funds Examples of such funds can include Liquid Funds, Overnight Funds, Ultra Short Duration Funds, etc.

• Medium-risk funds: Those looking for higher returns and ready to take some risk with their investments will find these ideal. These funds invest partly in debt and the rest in equity funds.
• High-risk funds: These types of MF are ideal for individuals seeking higher returns via dividends and interest. However, regular performance reviews become necessary in such cases since they are prone to market instability. Also, note that these types of funds provide 15-20% returns on investments.