About Mutual Fund
What are mutual funds? The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market. As far as mutual funds are concerned, SEBI formulates policies, regulates and supervises mutual funds to protect the interest of the investors. All Asset Management Companies (AMCs) are regulated by SEBI and/or the RBI (in case the AMC is promoted by a bank). In addition, every mutual fund has a board of directors that represents the unit holder’s interests in the mutual fund.
BENEFITS OF MUTUAL FUNDS: A professionally managed investment fund collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds have become popular investment vehicles offerings various kinds of schemes with different investment objectives. Mutual fund investment is one of the safest, easiest and convenient ways of making successful investments. We provide a platform to invest in mutual funds in a hassle-free, simple and convenient manner through our website www.ndic.in
- Advantages of Mutual Funds:
- 1. Diversification
- 2. Professional Management
- 3. Simplicity
- 4. Liquidity
- 5. Cost
- 6. Tax Efficiency
- 7. You Can Start with a Small Amount
- 8. Automated Investment
- 9. Safe and Transparent
- 10. Option to Choose SIP or Lump-sum
- 11. Match Your Style
- 12. Manage inflation
- 13. high returns
There are different types of Mutual Funds that invest in various securities, depending on their investment strategy. A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. A mutual fund collects money from investors and invests the money on their behalf. It charges a small fee for managing the money. Mutual funds are an ideal investment vehicle for regular investors who do not know much about investing. Investors can choose a mutual fund scheme based on their financial goal and start investing to achieve the goal.
The Schemes would be broadly classified in the following groups:-
1) Equity Schemes:- An Equity Fund is a Mutual Fund Scheme that invests predominantly in shares/stocks of companies with an aim to generate higher returns. It can be actively or passively (index fund) managed. Equity funds are also known as stock funds that invest in large cap, mid cap and small cap stock. These schemes invest directly in stocks. These schemes can give superior returns but can be risky in the short-term as their fortunes depend on how the stock market performs. Investors should look for a longer investment horizon of at least five to 10 years to invest in these schemes. There are 10 different types of equity schemes.
Definition of Large Cap, Mid Cap and Small Cap: In order to ensure uniformity in respect of the investment universe for equity schemes, it has been decided to define large cap, mid cap and small cap as follows:
a. Large Cap:- 1st -100th company in terms of full market capitalization
b. Mid Cap:- 101st -250th company in terms of full market capitalization c. Small Cap: 251st company onwards in terms of full market capitalization.
2) Debt mutual fund schemes: These schemes invest in debt securities. Investors should opt for debt schemes to achieve their short-term goals that are below five years. These schemes are safer than equity schemes and provide modest returns. There are 16 sub-categories under the debt mutual fund category. Debt Mutual Funds mainly invest in a mix of debt or fixed income securities such as Treasury Bills, Government Securities, Corporate Bonds, Money Market instruments and other debt securities of different time horizons. Generally, debt securities have a fixed maturity date & pay a fixed rate of interest.
Debt funds are mutual funds that invest in fixed income securities like bonds and treasury bills. Gilt fund, monthly income plans (MIPs), short term plans (STPs), liquid funds, and fixed maturity plans (FMPs) are some of the investment options in debt funds. A debt fund is a Mutual Fund scheme that invests in fixed income instruments, such as Corporate and Government Bonds, corporate debt securities, and money market instruments etc. that offer capital appreciation. Debt funds are also referred to as Income Funds or Bond Funds. Debt funds are ideal for investors who aim for regular income, but are risk-averse. Debt funds are less volatile and, hence, are less risky than equity funds. If you have been saving in traditional fixed income products like Bank Deposits, and looking for steady returns with low volatility, debt Mutual Funds could be a better option, as they help you achieve your financial goals in a more tax efficient manner and therefore earn better returns.
3) Hybrid Mutual Fund Schemes:- Hybrid mutual funds invest in two or more asset categories so that the investor can avail the benefit of both. A hybrid fund is an investment fund that is characterized by diversification among two or more asset classes. These schemes invest in a mix of equity and debt, and an investor must pick a scheme based on his risk appetite. Based on their allocation and investing style, hybrid schemes are categorised into six types. Hybrid/Balanced funds typically invest in a mix of stocks and bonds. They may also be known as asset allocation funds. Hybrid funds, as the name suggests, are funds that invest in a blend of more than one asset class. These could include, debt/fixed income securities, equity, commodities (gold).
Balanced funds are just one type of hybrid funds. The name suggests a balanced allocation between debt and equity i.e. close to 50:50. However, in reality, they have more of equity and less of debt (usually 65%-80% equity).
The reasons for this are two:
i) Equity Taxation: Any fund holding Indian equities 65% or more gets classified as “equity fund” for income tax. So A fund holding 50:50 would be classified as a debt fund for and would suffer higher taxation. Mutual Funds want to avoid that.
ii) Higher return potential: In a stock market rally, funds with higher equity allocation would get a higher return (they would also fall more in a market fall). In order to show a higher return than the competition, some schemes invest as much as 80% in equity.
There is a wide variety of hybrid funds, with different asset allocations (equity: debt) and fund management styles within the equity and debt allocations. So do your research well and choose wisely. Researching means understanding the nuts and bolts of the fund and how it behaves in different market situations – not just looking at past 1/3/5 year returns. You can also take the help of a good advisor for the same.
4) Solution Oriented Schemes:-
i) Retirement Fund:- Scheme having a lock – in for at least 5 years or till retirement age whichever is earlier
ii. Children’s Fund:- Scheme having a lock-in for at least 5 years or till the child attains age of majority whichever is earlier.
5) Other Schemes:-
i) Index Funds / ETFs:- Minimum investment in securities of a particular index (which is being replicated/ tracked)-95% of total assets
ii) FoFs (Overseas/ Domestic):- Minimum investment in the underlying fund-95% of total assets.