Mutual Funds
Mutual Fund selection is a process designed to create simplest ways to build wealth over the time. Here we are focused on creating combination of wealth creating funds according to your needs.
Mutual Funds
A mutual fund is an investment vehicle where many investors pool their money to earn returns on their capital over a period. This corpus of funds is managed by an investment professional known as a fund manager. It is his/her job to invest the corpus in different securities such as bonds, stocks, gold and other assets and seek to provide potential returns. The gains (or losses) on the investment are shared collectively by the investors in proportion to their contribution to the fund.
By investing in Mutual Funds you will be able to enjoy different benefits such as Diversification, Returns, Tax benefits and Professional expertise.
There are different types of mutual funds
- Debt Funds
- Equity Funds
- Hybrid Funds
- Balanced advantage Funds
Types funds based on structure:
Open-ended mutual funds
Open-ended funds are mutual funds where an investor can invest on any business day. These funds are bought and sold at their Net Asset Value (NAV). Open-ended funds are highly liquid because you can redeem your units from the fund on any business day at your convenience.
Close-ended mutual funds
Close-ended funds come with a pre-defined maturity period. Investors can invest in the fund only when it is launched and can withdraw their money from the fund only at the time of maturity.
Types of funds based on investment objective:
Mutual funds can also be classified basis investment objectives.
- Growth funds
The main objective of growth funds is capital appreciation. These funds put a significant portion of the money in stocks. These funds can be relatively riskier due to high exposure to equity and hence it is good to invest in them for the long-term. But if you are nearing your goal, for example, you may want to avoid these funds.
- Income funds
As the name suggests, income funds try to provide investors with a stable income. These are debt funds that invest mostly in bonds, government securities and certificate of deposits, etc. They are suitable for different -term goals and for investors with a lower-risk appetite.
- Liquid funds
Liquid funds put money in short-term money market instruments like treasury bills, Certificate of Deposits (CDs), term deposits, commercial papers and so on. Liquid funds help to park your surplus money for a few days to a few months or create an emergency fund.
- Tax saving funds
Tax saving funds offer you tax benefits under Section 80C of the Income Tax Act. When you invest in these funds, you can claim deductions up to Rs 1.5 lakh each year. Equity Linked Saving Scheme (ELSS) are an example of tax saving funds.
Benefits SIP
- Power of compounding
Compounding occurs when the returns you earn on your investments start earning returns. When you invest regularly through SIPs, your returns get reinvested. Over time, this result in a snowball-effect, that may increase your potential returns manifold. An ideal way to maximize this gain is to invest for an extended period. This also means you may benefit by investing as early as possible.
2) Low initial investment
You can invest in mutual funds through a SIP with just Rs. 500 per month. This can be an affordable way to invest each month without hurting your wallet. You can increase your monthly investment amount with a rise in your income via SIP step-up feature. Mutual fund houses allow investors to top up their SIPs on a regular basis. So, even if you start with Rs. 500 or Rs. 1,000 every month, you can invest more over the years. This strategy can help you reach your investment goals at a faster rate.
3) Rupee cost averaging
Rupee cost averaging is a concept where you purchase more units when the Net Asset Value (NAV) of the fund is low, and lesser units when the NAV is high. Essentially, it averages out your purchasing costs over the tenure of the investment period. You don’t need to worry about how to time the market when you invest through a SIP.
4) Convenience
SIP can be a convenient mode of investing. Like most investors, you may not have the time for extensive market research and analysis to adjust or balance your portfolio. So, once you pick a good fund, you can give standing instructions to the bank and let the SIP take care of your monthly investments.
Lumpsum investment with STP
Sometimes we collect lumpsum amount from investor in LIQUID FUND and then push it to growth fund through STP to get advantage of averaging as Mutual Fund is market-based tool. We usually do this with Tax saving funds.