Mutual Fund

What are Mutual Funds?

Mutual funds are like an investment vehicle which comprises of pool of money from various investors to invest in different asset classes according to their common objectives. These were designed to provide professional money management services to retail clients which were accessible to only HNIs earlier. The money could be invested in a variety of instruments ranging from stocks, bonds, government securities, debentures, etc. The small ticket sized capital is collected together and managed by the professional called the fund manager. A fund manager is responsible to produce capital gains and income for the fund investors. There are two major ways a fund is operated: open-ended and close-ended. In open-ended, an investor can enter and exit at any point in time while in close-ended, an investor can invest only during the initial period and will be automatically redeemed on the maturity date.

Types of Mutual funds

The category depends on the type of securities they consist of and certain factors like return, time horizon, and expected risk. In India, the mutual funds will either invest completely in equity or debt or the combination of both. Several types of equity and debt funds available are:

Equity Funds

These funds enable investors to take part in the stock market. These funds can be further based on sector-specific index, and tax-saving.

Money Market funds

These funds are suitable for low-risk investors seeking a stable return. They invest in the pool of fixed income bearing securities like debt, government securities, etc.

Debt Mutual funds

These funds are suitable for low-risk investors seeking a stable return. They invest in the pool of fixed income bearing securities like debt, government securities, etc.

Balanced funds

These funds invest in both the asset classes of equity and debt with evolving capital allocation.

Hybrid

Hybrid or marginal equity funds are similar in mechanism to the balanced fund except the equity proportion is much lesser.

Gilt funds

They are the safest funds investing in the government securities suited for risk-averse investors.

Benefits of Investing in Mutual Fund

With the increase in awareness and demand, mutual fund choices are also on the rise. Several styles and management objectives can match with that of the investor.

Unlike investing in stocks directly, the funds are subject to strict guidelines regulated by SEBI which ensure transparency and fairness to the investors.

Investing in a single stock can prove out to be a pretty risky deal. To increase the gain along with reducing the risk, diversification is preferred. Mutual funds are the perfect way to diversify our portfolio and reduce exposure.

Another important benefit is the professional management of an investor’s portfolio. The mutual fund buyer need not have expertise in picking stocks or managing the portfolio.

The mutual fund units can be easily bought and sold with high liquidity which increases the efficiency of investing in this asset class.

Frequently Asked Questions

How is a mutual fund set-up?

To set-up a mutual fund, a Trust is established under the Indian Trust Act by the sponsor. The trustees work for the benefit of the investors and safeguard them for any unfair practices. To manage this fund, the trust appoints an AMC.

What is NAV?

NAV or Net Asset Value is the market value of the mutual fund security which is calculated by dividing the net asset value of the scheme with the number of units outstanding. As an investor, you will be buying NAV to invest in the mutual fund. What all documents are required? The following documents are required to participate in the mutual fund for the first time: Proof of identity like Pan card. Proof of Address like UID, voter ID, passport, etc. Passport size photograph.

What to consider while selecting a mutual funds scheme?

While choosing the mutual fund there are various factors to consider to match your investment objectives. This might include the size of the fund, diversification of the fund, requirement of investment, and the level of security.

What is Dividend Option?

Such an option is available to provide a dividend declared by the company directly to the investor as per their share. You can also choose to reinvest the dividend payout back in the fund.

How often is NAV declared?

Every business day.

What are Growth Options?

In this type of mutual fund investment, there is no short term income or cash outflow from the fund in terms of dividend or interest. In other words, the money infused will continue to be invested until redemption

Is the entry load applicable for mutual funds?

As per SEBI circular no. SEBI/IMD/CIR No.4/168230/09 dated June 30, 2009, no entry load will be charged for purchase / additional purchase / switch-in/ SIP/ Systematic Transfer Plan / Systematic Investment Plan Plus accepted by the Fund with effect from August 1, 2009.

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ELSS and its Benefits

Disclaimer The information contained in this file is provided for informational purposes only, and should not be construed as legal advice on any matter. The content and interpretation of the law addressed herein is subject to revision. We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this file to the fullest extent permitted by law. Every effort is made to avoid errors. In spite of that, errors and discrepancies may creep in. It is expressly stated that neither Findoc Investmart Private Limited nor any of the contributors of updates will be responsible for any damage to anybody on the basis of this document. Readers are, therefore, requested to cross check with the original sources e.g. Government publications, Orders, Judgments etc., before taking any action or making any decision. These services are being provided through our group companies Findoc Capital Mart Pvt Ltd and Findoc Finvest Private Limited

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Important Message The information contained in this file is provided for informational purposes only, and should not be construed as legal advice on any matter. The content and interpretation of the law addressed herein is subject to revision. We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this file to the fullest extent permitted by law. Every effort is made to avoid errors. In spite of that, errors and discrepancies may creep in. It is expressly stated that neither Findoc Investmart Private Limited nor any of the contributors of updates will be responsible for any damage to anybody on the basis of this document. Readers are, therefore, requested to cross check with the original sources e.g. Government publications, Orders, Judgments etc., before taking any action or making any decision. These services are being provided through our group companies Findoc Capital Mart Pvt Ltd and Findoc Finvest Private Limited

Attention Investors
  • 1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.
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  • 3. Pay 20% upfront margin of the transaction value to trade in cash market segment.
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