Mutual Funds
What is Mutual Fund?
Mutual funds are investment plans in which investors pool their money and plan their capital investment in diversified assets, often stocks and bonds. With this investment, investors own shares and assets from various investment instruments.
Mutual Funds are convenient as they allow investors to manage a professionally planned investment portfolio and enjoy gains. With the pooling of resources, there is diversification in their financial portfolio with several assets, reducing risk for the investors and bringing gains. Experienced professionals manage the funds on behalf of the investor and plan a fund investment that provides gains, especially in a volatile market.
Objectives of a Mutual Fund
Mutual Funds (MFs) aim to achieve specific goals for investors, providing diversified portfolios, capital protection, capital growth and tax-saving opportunities. Here are the key objectives of a Mutual Fund:
Diversification
MFs naturally diversify across securities, assets and geographies, reducing risk by avoiding concentration in a single investment. This approach creates a balanced and resilient portfolio.
Capital Protection
Certain funds, like money-market and liquid funds prioritise protecting capital. While safer, they offer lower returns, making them suitable for investors seeking stability and capital preservation.
Saving Tax
Equity-linked Savings Schemes (ELSS) or tax-saving funds provide dual benefits—capital growth and tax savings. Offering income-tax deductions up to Rs 1.5 lakh in a financial year, they are an attractive option for tax-conscious investors.
Capital Growth
Equity Funds focus on capital growth by investing in stocks, offering a hedge against inflation. Despite higher returns, they come with higher risks, making them suitable for investors with a higher risk appetite.
Benefits of investing in Mutual Funds
There are different types of Mutual Funds in India, which cater to the different types of investors. Irrespective of how small or big your monthly income/expenditure is, you can easily find a Mutual Fund to suit your investment goals and risk appetite.
Investments in Mutual Funds up to Rs 1.5 lakh are subject to tax deductions under Section 80C of the Income Tax Act.
Types of Mutual Funds
Equity Funds
Equity funds are investments in companies’ stocks, focusing on capital appreciation over the long term. Due to market volatility, they offer high potential gains but also high risks.
Hybrid Funds
Hybrid funds are investments of equities and debt securities in a mixed format, having a balance of risk and returns. This type of investment is perfect for investors looking for a balance between their risk and returns.
Money Market Funds
Money market funds invest in short-term debt instruments, such as treasury bills and commercial paper, offering modest returns and low risk.
Income Funds
Income funds primarily invest in fixed-income securities that provide regular income through interest payments for those looking for steady income.
Tax-saving Funds
Tax-saving funds, such as ELSS, offer tax benefits under Section 80C while investing primarily in equities, combining tax savings with potential capital.
Debt Funds
Debt funds primarily invest in fixed-income securities like bonds, which offer stable returns and lower risk.
Liquid Funds
Liquid funds invest in short-term, highly liquid instruments, which gives easy access to funds and has less risk. They are considered best for short-term investment with good returns.
Growth Funds
Growth funds are investments that emphasise the investment plan with a company with higher potential returns and are in upward trends. They aim for capital appreciation over time and can be an option for those seeking higher returns.
Fixed Maturity Funds
Fixed maturity funds invest in debt securities with fixed maturity times and give investors an idea of returns over a specific time frame.
Capital Protection Funds
Capital protection funds aim to protect investors' capital while offering modest returns by investing in a mix of debt and equity securities.
Aggressive Growth Funds
Aggressive growth funds seek maximum capital appreciation by investing in high-risk assets like small-cap stocks. They are perfect for those who can tolerate higher risk.
Pension Funds
Pension funds are mainly used to build a retirement corpus by investing in a mix of equities and debt instruments. They hold long-term growth potential with a lock period.
