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Discover how mutual funds pool investor money to buy a diverse portfolio of assets. Learn to choose the best mutual fund for higher returns with minimal risk.
Mutual funds are divided into 3 types: Equity, Debt and Hybrid (Representative Image)
Mutual Funds are financial vehicles that gather funds or money from multiple investors to buy a diverse portfolio of stocks, bonds, and other assets. Professional fund managers oversee these investments, with the aim of accomplishing the fund’s specific investing objectives. Investors own shares, or units, in the mutual fund, which represent their proportion of the total holdings.
With a number of Mutual Funds registered with the Securities and Exchange Board of India (SEBI), it is quite challenging for some investors to select the best option for higher returns with minimum risk. Here are some of the factors you must consider before investing in a Mutual fund. Take a look:
Mutual Funds are divided into three types: Equity, Debt and Hybrid Funds:
Equity Funds: These are investment entities that primarily own stocks or equity in publicly traded firms. They pool funds from several investors to purchase a wide portfolio of stocks, with the goal of generating long-term capital growth and returns.
Debt Funds: These are investment vehicles that pool funds from multiple investors and invest them in debt instruments including bonds, government securities, and other fixed-income assets.
Hybrid Funds: These types of mutual funds are investment vehicles that diversify by owning multiple asset classes, typically a mix of stocks (equity) and bonds (fixed income) within the same fund.
To select the best mutual fund, you need to consider:
Goals: The first and most basic step before starting your investment journey is to set an objective. That is, what is the purpose of investment? How long are you planning your investment and with what return expectations?
Look for Risk Factors: Mutual funds are subject to market risk, just like any other investment. This is due to the fact that it is impossible to predict future events or whether the value of a particular asset will rise or fall. Therefore, understanding market fluctuation is important when investing in mutual funds.
Liquidity: It refers to the ease and speed with which an investor can buy or sell their mutual funds. Different funds have different liquidity features such as lock-in period, exit load, redemption limit etc. One should choose a Mutual fund that offers the flexibility to withdraw money whenever you need it.
Fund Performance: Understanding the Fund performance is important. It should be considered within a fair time limit to ensure that the investments have been through several market cycles. This would provide steady returns over time.
Investment Strategy: This refers to the approach and strategy adopted by the fund manager to select and manage the portfolio of the mutual fund.
Expense Ratio: The expense ratio is the commission or fee that investors pay for the proper management of their investments. It is basically the fund manager’s fee that is imposed on all investors to ensure profitability across the assets.
Taxation: Every profit an investor makes via a Mutual fund is taxable as per the Income Tax Act. For equity funds, Long Term Capital Gains (holding period of 12 months and above) are taxed at 10 per cent over and above the exemption limit of Rs 1 Lakh. Short capital Gains (holding period of fewer than 12 months) are taxed at 15 per cent.
Entry or Exit Load: The entry load is a fee levied by fund organizations to investors. The exit load is the fee imposed when leaving a mutual fund scheme.
Lump Sum or SIP: There are 2 ways to invest in Mutual Funds- Lump Sum or SIPs. This means the investor has the option of paying the entire sum at once or selecting a monthly payment plan that will be deducted from their respective bank accounts.
Investing in Mutual Funds or Stock Markets requires careful planning and research.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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Delhi, India, India
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