Mutual funds have gained considerable popularity over time and have become a preferred investment option for all age groups, from college students to working women, homemakers, and for people planning for retirement. With so much popularity, knowing about mutual funds and their types is very much important if you want to benefit from them. Let’s briefly look at mutual funds and some of the types that can meet your financial goals.
What are Mutual Funds?
Mutual funds are investments in assets like bonds, stocks, gold, and government securities. Various investors invest in these assets, which are then combined and invested. Mutual Funds are handled by professional portfolio managers who monitor returns on investment and have expertise in risk management. They are the decision-makers on where and when to make investments.
SEBI (Security and Exchange Board of India) handles and controls these mutual funds, making them the most reliable investment option.
Investing in mutual funds can be beneficial if you assess your requirements before investing in any mutual fund. But before learning about its benefits, let’s examine some of its functions.
Features of Mutual Fund
Here are some of the major features of mutual fund:
1. New Fund Offer (NFO) Release
A new fund offer allows investors to invest in new investment schemes. NFO is the period before launching an investment scheme in a mutual fund. It is when AMCs launch new schemes that are open to the public and allow investors to buy stocks at fixed prices.
2. Pooling Investments
Mutual funds combine investments from various investors, which are further invested in different stocks, industries and securities. This allows people to invest in a more extensive security landscape, which would probably be difficult to manage individually.
3. Investments in Securities
Mutual fund investments are made by professional portfolio managers who strategically monitor the market, economy, and industries. They are responsible for making investment decisions for all mutual fund investors and aim to gain a high return on investment.
4. Reinvestment Opportunities
Mutual funds allow for the reinvestment of the profits gained through mutual funds, resulting in higher profits. These profits can either be withdrawn or reinvested in the scheme as investors’ wish.
Types of Mutual Funds
There are multiple types of mutual funds, each having different requirements. Every type of mutual fund is structured to provide investors with a solution to their financial goals. The Securities and Exchange Board of India (SEBI) has categorised mutual funds based on where they invest. Are you searching for the best mutual funds in India? You are in the right place. Let’s have a close look at some of the best mutual funds.
- Equity Mutual Funds
Equity mutual funds are for long-term investments that offer high returns but have higher risk.
Mutual funds invest in fixed-income securities, such as corporate and government securities. These mutual funds offer stable returns as they are not influenced by the stock market.
Hybrid mutual funds are invested in equity and debt in a certain percentage, resulting in a bit higher risk and, in debt mutual funds.
- Open-ended Mutual Funds
Mutual funds that allow you to invest and withdraw investments at any time.
- Close-ended Mutual Funds
Mutual funds that have fixed maturity dates and allow redemption only at the maturity date and investment at the time of the next new fund offer.
Why Invest in Mutual Funds?
1. Professional expertise
Investing in the financial market is not easy. It requires market knowledge, experience, research, and analysis. To do this, you need to know how the market runs, which are the best investment options, and what affects market conditions. Investing in the financial market requires time and skills. If you don’t have the skills, mutual funds can be the best option to try your hands on, where a trusted professional portfolio manager takes care of your investments and strives to provide you with the best experience by generating maximum profits.
2. High Returns
One of the biggest reasons to invest in mutual funds is that they offer opportunities to earn high profits compared to other investment options. As mutual funds run on the stock market, investors can earn high profits when the market shoots up.
3. Diversification of Securities
Mutual funds diversify securities in different industries, which is one reason to choose a mutual fund when considering an investment plan. Investing in a single security increases the risk of loss if the market falls at any time, and diversification of securities is the way to avoid risks. If a stock falls, the other stock can cover the losses through its gains.
4. Tax Deductions
A mutual fund is one of the investment plans that has earned a lot of popularity in recent times. Do you know why? Mutual funds have multiple benefits: They not only yield higher returns but also have tax benefits. Mutual fund investors can claim up to 1.5 lakhs of tax deduction per financial year through ELSS. ELSS is an equity-linked savings scheme with a three-year tenure that allows investors to withdraw profits at any time
Ways to Invest in Mutual Funds
Mutual funds allow investors to invest according to their convenience and affordability, and they offer two ways to invest in mutual funds. These are:
1. Lumpsum
Mutual funds allow individuals to invest a certain amount in one go. If you have to invest a certain amount, say ₹50,000/- and are willing to invest in mutual funds, you can go with a lump sum investment and invest ₹50,000 all at once.
2. SIP
The other option to invest in mutual funds is through a systematic investment plan (SIP), which allows individuals to invest a certain amount regularly. Say you don’t have Rs.50,000 but can manage to invest ₹5000 per month. This way, investors without savings can still invest and secure their future by gaining profits through SIPs.
Conclusion
Invest in mutual funds to lock your future insecurities and move toward a secure tomorrow. As we said, remember to invest in a scheme that suits your requirements rather than following the crowd and choosing a plan that people around you are choosing. Understand your needs before investing in any mutual funds.
Santosh Kumar, He is a SEO + Blogger have 12 years of experience in writing tutorial, informative and product reviews topics.
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