About Mutual Funds | I U Thakur

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About Mutual Funds

Investing directly in the equity markets is not everyone’s cup of tea. Direct equity investing requires fundamental knowledge of the market as well as company financials.
One should have enough time to analyze companies, industries, and factors that affect stock performance in the market. If this seems tedious, one may opt to invest in mutual funds through mutual fund advisors.

There are various types of mutual funds that cater to the varying needs of investors.
The industry is constantly striving to launch newer and innovative products every now and then to entice investors to put their money in them.
Wading through the choices and selecting a mutual fund is not an easy task.

Therefore, sometimes, one may need an expert to map out your profile and find the best-fit fund for your investment portfolio. That expert is the mutual fund advisor.

What is Mutual Fund ?

To many people, Mutual Funds can seem complicated or intimidating. We are going to try and simplify it for you at its very basic level. Essentially, the money pooled in by a large number of people (or investors) is what makes up a Mutual Fund. This fund is managed by a professional fund manager.

It is a trust that collects money from a number of investors who share a common investment objective. Then, it invests the money in equities, bonds, money market instruments and/or other securities. Each investor owns units, which represent a portion of the holdings of the fund. The income/gains generated from this collective investment is distributed proportionately amongst the investors after deducting certain expenses, by calculating a scheme’s “Net Asset Value or NAV.

What Are the Various Types of Mutual Funds?

Various types of Mutual Fund schemes exist to cater to different needs of different people. Largely there are three types mutual funds.

Equity or Growth
Funds

• The primary objective is wealth creation or capital appreciation.

• Mid Cap funds which invest in mid-sized companies. funds which invest in mid-sized companies.

• Small Cap funds that invest in small sized companies

• Multi Cap funds” funds that invest in a mix of large, mid and small sized companies.

Income or Bond or Fixed Income Funds

• These invest in Fixed Income Securities, like Government Securities or Bonds, Commercial Papers and Debentures, Bank Certificates of Deposits and Money Market instruments like Treasury Bills, Commercial Paper, etc.

• These are relatively safer investments and are suitable for Income Generation.

• Examples would be Liquid Funds, Short Term, Floating Rate, Corporate Debt, Dynamic Bond, Gilt Funds, etc.

Hybrid Funds

• These invest in both Equities and Fixed Income, thus offering the best of both, Growth Potential as well as Income Generation.

• Examples would be Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans and Monthly Income Plans, etc.

Role of Mutual Fund Advisors?

Plan investment

Keeping in mind the investor’s capital, financial goals, and current financial situation, advisors may structure and plan investments accordingly, keeping the investors informed at every step.

Evaluate risk appetite

Every investor brings with them different risk tolerance levels. So it becomes paramount for the investor to pick suitable funds that match their risk profile. Mutual fund advisors guide investors accordingly after a detailed risk profiling exercise.

Portfolio Rebalancing

Mutual fund advisors may also help with tracking and assessing the portfolio for performance optimization and suggest rebalancing measures – switching out of a fund or setting up a Systematic Withdrawal Plan or simply redeeming and reinvesting in another fund as per market conditions and the strategy of the investor.

Diversification of the Portfolio

Further to analyzing the possible investment options, mutual fund advisors also help with optimal portfolio diversification. Portfolio diversification is essential when it comes to minimizing the risk.

What Does Mutual Funds and Advisors Do ?

Mutual funds are a convenient form of investment, especially for salaried professionals who do not have time to track the markets every day. Furthermore, mutual fund advisors and institutions may guide you in making proper investment choices as per your financial goals. They help shortlist the best available choice of funds as per the investors’ interest.

Mutual fund advisors have in-depth knowledge of mutual funds and can give you the best professional advice to help you earn higher returns. But, if you opt for mutual fund direct plans you will have to rely on your own knowledge. Hence if you opt for a regular plan you benefit.

Benefits of Investing in Mutual Funds

Professional Management
Risk Diversification
Affordability & Convenience (Invest Small Amounts)
Liquidity
Low Cost
Well-Regulated
Tax Benefits

Benefits

How Can We Help ?

A mutual fund advisor’s main job is to sell mutual fund products to potential investors. They work according to the client’s needs and help make the right decision based on the investor’s financial goals.

Audits

Wrapping up

Mutual funds provide an excellent opportunity for investors to invest in a diverse portfolio of assets managed by professional fund managers. They are a convenient and accessible way to invest with reasonable minimum investment requirements and low fees.

Investing in mutual funds can help you build long-term wealth while also providing tax benefits. But, before investing, you should assess your risk tolerance, investment horizon, and fund performance.

Ultimately, mutual funds are a good investment choice for people of various income levels and risk tolerances. You may make informed decisions and expand your money over time by conducting research and carefully assessing your investing goals.

frequently asked questions

FAQ's of Mutual Funds ?

How do I get my returns in Mutual Funds ?

Like other asset classes, Mutual Funds returns are calculated by computing appreciation in the value of your investment over a period as compared to the initial investment made.

Net Asset Value of Mutual Fund indicates its price and is used in calculating returns from your Mutual Fund investments. Return over a period is calculated as the difference in sale date NAV and purchase date NAV upon purchase date NAV and converted to percentage by multiplying the result by 100 . Any net dividend* or other income distribution by the fund during the holding period is also added to the capital appreciation while computing total returns.

Capital appreciation in Mutual Funds is reflected by increase in NAV over time. This happens because NAV of a fund is derived from stock prices of companies included in the portfolio of the fund, and the prices fluctuate every day. Change in NAV of a fund over time contributes to the capital appreciation or loss in your holding. View the return performance of your investments in the account statement provided to you by the fund house. This statement captures both your transactions and the return on your investments.

What is Systematic Investment Plan (SIP) ?

Systematic Investment Plan (SIP) is an investment route offered by Mutual Funds wherein one can invest a fixed amount in a Mutual Fund scheme at regular intervals– say once a month or once a quarter, instead of making a lump-sum investment. The installment amount could be as little as INR 500 a month and is similar to a recurring deposit. It’s convenient as you can give your bank standing instructions to debit the amount every month.

SIP has been gaining popularity among Indian MF investors, as it helps in investing in a disciplined manner without worrying about market volatility and timing the market. Systematic Investment Plans offered by Mutual Funds are easily the best way to enter the world of investments for the long term. It is very important to invest for the long-term, which means that you should start investing early, in order to maximize the end returns. So your mantra should be - Start Early, Invest Regularly to get the best out of your investments.

When should I start investing in Mutual Funds ?

There is a beautiful Chinese proverb, “The best time to plant a tree was 20 years ago. The second best time is now.