Mutual Fund

What is Mutual Fund?

With the growing awareness towards investments, Mutual Funds have emerged as a highly popular investment option among investors in India replicating what has been witnessed across the globe. Mutual Funds score over other asset classes given the advantages of convenience & cost-effectiveness which at the same time strives to attain the objectives of capital appreciation/protection & income generation. A mutual fund pools the money of various investors having common objective with a view to invest in various securities. Mutual funds may invest in variety of instruments like stocks, bonds, money market securities, gold or a combination of these which provides diversification to your investments. These schemes are professionally managed on behalf of the investors to help them attain their financial goals.

Advantages of Mutual Fund

Investor Safety:

Registration of Mutual Funds with SEBI is mandatory. With investor interest at the helm, SEBI has laid down strict regulations to safeguard investors against possible frauds, and every company issuing or dealing in Mutual Funds must abide by them.

Professional Financial Experts:

Every Mutual Fund scheme has a well-defined objective. And behind every scheme, there is a dedicated team of financial experts working in tandem with specialized investment research team. These experts diligently and judiciously study companies, their products and performance, and after thorough analysis, they decide on the best investment option most aptly suited to achieve the scheme’s objective as well as investor’s financial goals.

Diversifying Risk:

Mutual Funds diversify the risks of investment by investing in varied stocks across different industries or sectors. Market volatility seldom affects all sectors at once, and hence, the investor is saved from incurring heavy losses.

Rate of Return:

The return potential of medium to long term Mutual Funds multiplies manifold, resulting in greater profitability for investors in the long-term.

Liquidity:

In open ended schemes, Investors can encash his investments in Mutual Funds, partially or wholly, at any point of time. For Closed ended schemes, investors can encash their investments at prevailing NAV, subject to exit load, if provided in the scheme. In certain schemes, like ELSS (tax saving schemes), where lock in period is mentioned, investor cannot redeem his investment until that period.

Convenience:

Mutual Funds facilitate easy and disciplined investment as well as ensure easy withdrawal of funds as per investor’s convenience.

Three ways to invest in Mutual Funds

Lumpsum Investments:

Lumpsum investments are those investments which are made in a single tranche. For example, investment in liquid fund, investment /switch from liquid to equity or debt funds in one tranche, important factor being entire investment is made one or maximum two tranches.

SIPs:

SIP or systematic investment plans are investments which are made by the investors at pre-defined frequencies, for example, quarterly, monthly, weekly, daily. SIP works on the concept of dollar/ rupee cost averaging. SIPs are the best tools in controlling emotions, maintaining discipline and navigating volatility in markets.

STPs:

Systematic transfer plans are pre-defined frequencies of transferring investments from one asset class (Liquid, Equity, Debt) to another.

Two Ways to Redeem from Mutual Funds

Lumpsum Redemptions:

In case of Lumpsum redemptions, investor can exit from his/her mutual fund investment at one go.

SWPs:

In case of Systematic withdrawal plan, investments can be withdrawn at pre-defined frequencies from the concerned asset classes (Liquid, Equity, Debt) to one’s bank.