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Diversify your investment portfolio through an appropriate mix of Mutual Funds

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

Investors have different types of mutual funds options at their disposal, each boasting of its own distinctive features.


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

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Mutual funds can be a solid investment option for individuals looking for diversified portfolios without actively managing their investments. Mutual fund investment calls for a thorough evaluation of various factors such as the investor's financial targets, risk acceptance, and investment horizon. From a theoretical perspective, mutual funds provide a diversification advantage to investors by spreading their investments across various securities. Despite their potential benefits, mutual funds also pose risks and disadvantages, much like any other investment.

To start investing in mutual funds, you should first determine your investment goals and risk tolerance. This will help you choose the appropriate mutual funds for your portfolio. You should also research different mutual fund companies and compare their fees, past performance, and investment strategies. Once you have chosen a mutual fund or several mutual funds to invest in, you can purchase them through a brokerage account or directly from the mutual fund company. To ensure that your investments remain in accordance with your investment goals, it's crucial to monitor them regularly and make modifications as needed.

Investors in India cannot receive complete tax exemption on mutual fund investments. However, they can utilize the tax benefits mentioned in Section 80C of the Income Tax Act by investing in tax-saving mutual funds, such as Equity Linked Savings Scheme (ELSS), which can yield up to Rs. 1.5 lakh in tax benefits.

When you wish to take out money from a mutual fund, you will usually have to complete a redemption form or make a request through your internet account. It is essential to note that certain mutual funds may have limitations or charges for premature withdrawals, so it is vital to examine the fund's prospectus and comprehend any fees or regulations that may apply.

Yes, investors can exit mutual funds at any time.

Exit load refers to a fee that mutual funds may charge investors when they sell or redeem their units before a certain period of time, typically one year.

Yes, It is absolutely viable to put money into mutual funds without owning a demat account. Several mutual fund companies offer the option of investing through a physical application form or through their website without the need for a demat account.

The Systematic Investment Plan (SIP) is a way for investors to regularly invest a predetermined sum of money into mutual funds, usually on a monthly basis. This provides an avenue for individuals to invest in mutual funds with ease. This mode of investment allows for a consistent, systematic approach to accumulating wealth over a given period of time.

There are numerous benefits associated with making a Systematic Investment Plan (SIP) investment:

  • Making investments on a regular basis at various market levels through SIPs assists in balancing out investment costs.
  • By investing small sums of money on a regular basis, individuals are able to take advantage of this opportunity.

Effective management of investments in mutual funds requires a deep understanding of the underlying investment strategy and disciplined adherence to a well-designed investment plan.

Yes, you can invest directly in mutual funds through Deal Plexus.

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