What are
Mutual Funds?

Pooling of investments has made mutual funds a popular choice amongst investors who wish to gain exposure to a wide range of assets such as securities, bonds, and stocks. In this scheme, a professional fund manager takes charge of managing the pooled funds and makes purchases that align with the fund's objective. Every investor holds units in the mutual fund, and these units denote the investor's portion of the assets owned by the fund. These units can be bought and sold on an exchange at their net asset value (NAV) which is calculated on a daily basis. Investors have a plethora of funds at their disposal to select from, each catering to their specific investment goals, risk appetite, and market trends.

Types of Mutual Funds

  • Based on Asset
  • Based on Investment Objective
  • Based on Structure
Based on Asset
Debt Funds

Debt Funds are professionally managed and diversified portfolios of mutual fund investments that are comprised of fixed-income securities such as bonds and other debt instruments. These Funds offer a safe way to generate returns that are generally relatively stable along with income distributions.

Hybrid Funds

Hybrid Funds is a special type of fund, allowing investors to access a mix of stocks, bonds and other investment options across different asset classes and markets. With this sophisticated approach, Hybrid Funds offer a broad diversification potential and the potential for higher returns

Equity Funds

Equity Funds offer investors the opportunity to benefit from the growth of share prices, as well as access to a wide range of different stocks and market sectors. Equity Funds are an excellent means of broadening your portfolio and achieving higher returns with a restricted investment time frame.

Balance Funds

With a unique blend of low risk and a potential for high return, this carefully calculated mix of funds is designed to help you reach your financial goals and minimize the potential for heavy losses.

Arbitrage Fund

Arbitrage Fund is a dynamic investment solution for those seeking maximum returns on their capital. It offers flexible pricing strategies through cost savings and capital optimization strategies.

Based on Investment Objective
Income Funds

Through the combination of various high quality asset classes, such as bonds and dividend stocks, investors can benefit from a steady stream of income with low downside risk. With their low fees and easy access, Income Funds are a great way to begin your long-term investment journey.

Liquid Funds

Liquid Funds provides cutting-edge payment processing capabilities and allows users to make immediate transfers and payments. With Liquid Funds, you are able to manage, track, and monitor your financial assets quickly and conveniently.

Tax-Saving Funds

Tax-Saving Funds are a great investment option to help reduce your tax burden. They provide a secure way to save on taxes while still allowing you to grow your savings

Growth Funds

Growth Funds offers access to a selection of growth stocks, mutual funds, and ETFs that can enhance your portfolio with steady returns. With Growth Funds, you can tailor your investments to meet your individual goals

Based on Structure
Open-Ended Funds

Open-Ended Funds are investment vehicles that offer an efficient, cost-effective way to access a variety of financial markets. With a minimum investment required to start, they allow for maximum flexibility for investments while maximizing returns on capital when the markets move in the desired direction.

Close Ended Funds

Close Ended Funds are an investment vehicle with a limited number of redeemable units. Professional portfolio managers manage them and they provide a reliable and secure option for investors to invest their resources in the mutual fund markets. They are tailored to generate steady returns over an extended period of time, with the possibility of greater returns.

Interval Funds

Investing in a diversified portfolio, comprising of stocks, bonds, and other assets, can be made cost-effective through Interval Funds. This type of fund allows investors to benefit from long-term growth while minimizing risk.

Buy and sell process

An investor must first select the mutual fund they wish to invest/divest in, based on criteria such as performance, fees, and investment goals. The investor can then purchase/sell units of the selected mutual fund online, if he/she has a demat and trading account or offline by filling a physical application form and submitting directly with the mutual fund.

Mutual fund transactions are subject to mutual fund charges, such as exit load (charges on selling units before lapse of a certain defined time period) and management fees, which should be carefully considered before buying or selling mutual funds

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Advantages of Mutual Funds

  • Mutual funds allow you to access a diversified portfolio of securities, like stocks, bonds, debentures etc reducing the risk associated with investing in individual stocks or bonds
  • Expert fund managers handle mutual funds, employing research and analysis to arrive at wise investment choices. This spares investors from having to keep a watchful eye on the capricious markets
  • It offers liquidity, allowing investors the flexibility to buy and sell units at any time
  • These funds are cost-effective as they pool investors' money together to achieve economies of scale in terms of transaction costs and management fees
  • These funds offer simplicity and transparency, providing investors with easy-to-understand information on their investments' performance.

Risk Associated with Mutual Funds

Investors should remain conscious of the potential risks involved while investing in mutual funds.

  • Market risk refers to the possibility of suffering financial loss as a result of changes in the stock market
  • Another risk is liquidity risk, which can occur if there are not enough buyers or sellers in the market, or if the fund holds investments that are difficult to sell.
  • Additionally, investors should be aware of fees and expenses associated with mutual funds, which can impact their overall returns.

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Fees or charges of mutual fund

There are different mutual fund charges or fees that investors may incur such as expense ratios, front-end loads, back-end loads and redemption fees which can vary from fund to fund. The management fee of a mutual fund, which the company charges annually, is known as the expense ratio and is subtracted from the fund's assets.

When making a purchase of investments, front-end loads or sales charges will be applied, whereas back-end loads or exit loads will be applied when redeeming the investment.

Conclusion

In conclusion, mutual funds are an excellent investment opportunity for individuals with various financial goals and objectives. The different types of mutual funds offer a broad range of investment options to choose from, while the advantages of these funds make them a popular choice among investors.

Investors must be cautious of the potential hazards and costs that come with putting their money into these funds. To ensure a wise decision, investors should do extensive exploration and consult with experts to obtain maximum returns while minimizing risks.

Frequently Asked Questions

Are mutual funds a good investment?

Mutual funds can be a solid investment option for individuals looking for diversified portfolios without actively managing their investments. Investment choices should align with your financial targets, risk appetite, and time horizon. Mutual funds offer diversification by spreading investments across various securities. However, like any investment, they also carry certain risks and limitations.

How can I start investment in mutual funds?

Begin by defining your investment goals and risk tolerance. Then, research mutual funds based on fees, past performance, and strategy. You can invest via a brokerage platform or directly with the mutual fund company. Monitor your portfolio regularly and adjust it to stay aligned with your objectives.

Is investment in mutual fund tax free?

Mutual fund investments are not entirely tax-free. However, certain funds like ELSS (Equity Linked Savings Scheme) qualify for tax deductions under Section 80C of the Income Tax Act, up to ₹1.5 lakh per year.

How do I withdraw money from a mutual fund?

You can redeem your mutual fund units through an online portal or by submitting a redemption form. Be aware that some funds may charge exit fees or have restrictions on early withdrawals. Always check the scheme's terms.

Can I exit mutual fund anytime?

Yes, mutual fund investments can typically be exited at any time unless they are locked-in (like ELSS for 3 years). Review the terms of the specific scheme before redeeming.

What is exit load?

Exit load is a fee charged by mutual funds when investors redeem units within a certain period (usually within 1 year). This charge helps discourage short-term trading.

I do not have a demat account. Can I still invest in mutual funds?

Yes, it is absolutely possible to invest in mutual funds without having a demat account. Many mutual fund companies allow investments through physical application forms or via their websites without requiring a demat account.

What is SIP?

Systematic Investment Plan (SIP) is a method of investing a fixed amount regularly in mutual funds, usually on a monthly basis. It encourages disciplined investing and helps build wealth gradually over time.

What is the advantage of investing in a SIP?

SIPs offer several benefits:

  • They average out investment costs by investing regularly across market cycles.
  • They allow small, consistent contributions which make investing accessible.
  • SIPs instill financial discipline and encourage long-term wealth accumulation.

How do I manage my investment in mutual funds?

Effective mutual fund management involves understanding the fund's investment strategy and consistently following a structured investment plan. Regular review and rebalancing as per your goals is also important.

Can I invest directly in Mutual Funds from Deal Plexus?

Yes, you can invest directly in mutual funds through Deal Plexus. The platform offers options for direct investment and management.

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