Mutual Funds


What is a Mutual Fund?

To simply put, the money pooled in by a large number of investors is what makes up a Mutual Fund. This money is then managed by a professional Fund Manager, who uses his investment management skills to invest it in various financial instruments.
The increase in value of the investments along with other incomes earned from it is then passed on to the investors / unit holders in proportion with the number of units owned after deducting applicable expenses, load and taxes.



How to invest in Mutual Funds?

  • Investing online (through online platform)
  • Investing offline (through application form)
  • Investing through mobile

What is KYC Compliance?

All those who would want to invest in mutual funds are required to be compliant with know-your-customer (KYC) norms, irrespective of amount they invest in.

The documents required are Photograph, PAN card, Name and Address proof.

Growth, Dividend or Dividend Re-investment?

When investing in mutual funds, there are three options that are available in which one could invest: growth, dividend and dividend reinvestment.

Growth option: In this option, the scheme does not be paying any dividend, but the fund continues to grow. Therefore, nothing is received by an investor or there is nothing to reinvest in the scheme.

Dividend payout: In this option, the mutual fund scheme pays from the profits made by the scheme at regular periods which could be monthly, quarterly, half-yearly or yearly in case of debt funds and at irregular intervals in the case of equity funds

Dividend reinvestment: In this option, the dividend is not paid but reinvested in the fund scheme itself by buying more units

 

What is Debt Mutual Fund?

Companies, state governments and even the central government all require money to run their operations. They offer various debt based instruments like TBills, Debentures, GSecs etc., and Mutual Funds buy the debt that is issued by them.

Debt Funds help bring stability to investment portfolio since they are lower in risk as compared to Equity Funds, yet riskier than Liquid Funds and their aim itself is to generate steady returns while preserving the capital.

These would typically invest in government securities, NCD, CDs, CPs bonds and other fixed income securities as well as lend money to large organisations or Corporates, in return of a fixed interest rate. Therefore, investing in Debt Mutual Funds would be ideal if someone is looking at a potentially higher return than Liquid Funds over a medium term time horizon, between 3 to 24 months.
Source:AMFIINDIA.com

What is Equity Mutual Fund??

When someone is investing in equity, he is considered as an owner of the particular company that he is invested in, to the extent of his investment. So naturally, like any owner, the profit is linked with the performance of the company. The higher the profits of the company, the better is the share price and hence the better your gains. Unlike Debt Funds, there is absolutely no assurance whatsoever on the principal, rate of interest or tenure when investing in Equity Funds.

Like with any high risk action, Equity Funds also carry the potential to deliver high returns. And to help counter this risk, Mutual Funds are invested in multiple companies that usually don’t belong to one or correlated sectors. This is known as diversifying.

In the long run, one needs to be guarded against inflation and in the short run, market fluctuations. Equity, though volatile, has proved to be a better bet against inflation, provided one has a long term investment.
Source:AMFIINDIA.com

 

What is a SIP in mutual fund?
SIP is a method of investing a fixed amount, regularly, in a mutual fund scheme. SIP allows one to buy units of a mutual fund on a given date of each month. The investor can invest fixed amount in a scheme every month through post-dated cheques or through ECS

Why SIP?

  • Disciplined approach to investments
  • No need to time the market
  • Harness the power of two powerful Investment strategies: Rupee Cost Averaging - Benefit from Volatility Power of Compounding