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Mutual Funds

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Mutual Funds

What are Mutual Funds?

Mutual funds are investment vehicles that pool money from multiple investors to purchase securities. They offer diversification and professional management, making them an excellent choice for both novice and experienced investors.

Types of Mutual Funds in India

Based on Asset Class

Equity Funds

Invest mainly in stocks, offering high returns with higher risk.

Debt Funds

Invest in low-risk fixed-income instruments, ideal for conservative investors.

Money Market Funds

Invest in cash and cash equivalents with lower risk.

Hybrid Funds

Balance risk and return by investing in both equity and debt.

Based on Structure

Open-ended Funds

No constraints on trading units; flexible for investors.

Closed-ended Funds

Fixed unit capital with limited selling options.

Interval Funds

Can be bought or sold only at specific intervals.

Based on Investment Objective

Growth Funds

Invest in high-growth companies for high returns.

Income Funds

Focus on high dividend stocks for regular income.

Liquid Funds

Invest in short-term debt securities, tenure up to 91 days.

Tax-saving Funds

ELSS funds with a 3-year lock-in and tax benefits.

Based on Risk Profile

High-risk Funds

High returns with significant market volatility.

Medium-risk Funds

Balanced risk and return with mixed investments.

Low-risk Funds

Invest in arbitrage and ultra-short-term funds.

Very Low-risk Funds

Minimal risk with returns around 6%.

Structure of Mutual Funds

Sponsor

Sets up the mutual fund and appoints trustees and AMCs.

Board of Trustees

Protects investor interests and ensures compliance.

Asset Management Company

Manages daily operations and investments.

Custodian

Holds the securities invested by the AMC.

Benefits of Investing in Mutual Funds

  • Liquidity: Easy to buy and sell open-ended funds.
  • Managed by Experts: Professional fund managers handle investments.
  • Diversification: Spread risk across multiple asset classes.
  • Financial Goals: Schemes tailored to meet various objectives.
  • Low Cost: Lower commissions for bulk purchases.
  • Systematic Investment Plans: Regular investments for steady growth.
  • Easy Process: Simple investment process.
  • Tax Efficiency: Potential tax benefits under Section 80C.
  • Safety: Regulated fund houses ensure capital safety.
  • Automated Payments: SIPs can be automated for convenience.

Mutual Fund Comparison

Fund Name Type Annual Returns Minimum Investment Risk Level Key Benefits
HDFC Equity Fund Equity Fund 12% - 15% ₹500 High Long-term capital growth, diversification, professional management
ICICI Prudential Balanced Advantage Fund Hybrid Fund 8% - 10% ₹1,000 Moderate Balanced risk, equity and debt exposure, tax benefits
SBI Gold Fund Commodity Fund 10% - 12% ₹1,000 Medium Invests in gold, hedges against inflation, diversification
Axis Long Term Equity Fund ELSS 11% - 14% ₹500 High Tax deductions under Section 80C, long-term growth

Frequently Asked Questions (FAQs)

Bank account details are needed for transactions, including investments, redemptions, and dividend payouts.

Yes, you can nominate individuals to inherit your units in case of unforeseen events.

Yes, NRIs can invest, subject to compliance with FEMA regulations and KYC requirements.

Cut-off times determine the Net Asset Value (NAV) applicable for buying or selling units on a given day.

NAV is the per-unit market value of a fund’s assets minus liabilities, calculated daily.

ELSS funds offer tax deductions under Section 80C with a 3-year lock-in period.

Consider risk profile, investment goals, fund performance, expense ratio, and fund manager expertise.

Submit a redemption request through the fund house or distributor; funds are credited within a few days.

SIPs offer disciplined investing and rupee cost averaging, while lump sums suit large capital investments.

Yes, KYC is mandatory to comply with regulatory requirements.

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