Mutual Funds are a way to invest money through a company which collects small amount of money from individual investors & then invests in the in either stock market, money market, debt or combination of any two or all of these depending upon the type of funds chosen by investors & their risk appetite. The combined holding of the company is known as portfolio. Investor can buy any mutual fund & it represents his ownership in that particular fund.
Mutual Funds offer confidence & convenience to retail investors as there are professional fund managers who manage their money. These fund managers diversify the portfolio to mitigate the risk associated with the investment & at the same time make sure that funds are not over diversified which can impact the returns on the investments. They keep track of all the business, technological & political developments happening in the market pertaining to the companies in their portfolio & make sell or buy decision on your behalf to maximize return on your capital.
There are several kinds of mutual funds available in the market. Broadly Mutual Funds can be divided into 3 types based in the types of instruments invested into :
As the name itself suggest, these funds invest the money pooled from individual investors into equity markets. Equity funds can be further divided into following categories :
These are type of funds which invest in top 100 companies listed in stock exchanges. These funds are lesser volatile as compared to other funds & liquidity is also good. This category is suitable for investors which are looking for superior returns than fixed deposit with lesser risk associated.
Mutual funds which invest in the listed companies ranked from 101 to 250 based on Mcap. These funds are expected to give superior returns compared to the large cap funds but at the same time are more volatile. Midcap funds are suitable for investors who are looking for higher return & have moderate risk appetite.
Small Caps are funds which invest in listed companies ranked 251 & above based on Mcap. Small cap companies are mostly new & not well established & capitalized. Many small cap companies grow multifold due to lower base which leads to superior returns compared to large & mid caps funds over a longer time horizons & hence can bring huge wealth to the investors. These funds are extremely volatile in nature as a small drop in benchmark indices can lead to much higher drop in small cap index. These funds are suitable for investors with high risk appetite & ability to handle volatility.
Multi cap Funds distribute the asset under all kinds of asset classes. The large cap give stability to the asset under management (AUM) & mid cap & small cap bring the required aggression for higher return.
It stands for “Equity Linked Saving Schemes” is a tax saving instrument for salaried class. ELSS is a mutual fund which comes with a 3 years lock-in of period. Investment in ELSS qualifies or tax benefit under Section 80C of Income Tax up to Rs 1.5 L per annum.
Debt funds invest in fixed income instruments like money markets, Govt. securities & corporate bonds which generate relative stable return. These funds offer much lower risk as compared to equity funds & hence suitable for risk averse investors who can sacrifice return but want peace of mind.
The name itself is self-explanatory as these funds are combination of equity & debt instruments. Funds managers try to combine safety of debt funds with the aggressive return of equity.
The investment in Mutual Funds can be done through :
