In many ways, the mutual fund investment process in India is like buying a new mobile phone. Buying a good mobile has always been a challenge. Choosing the best one can be daunting since there are numerous options to choose from.
The process for investing in mutual funds is kind of similar. With each fund having its own sets of pros and cons, you need to define your objective and invest accordingly. Worried? This piece will take you through how these funds work and what you need to consider before investing in the right fund.
Mutual funds operate by pooling capital from several investors to purchase assets such as stocks, bonds and other tradable securities in the markets. In other words, when you invest in a mutual fund, you’re investing in a bunch of regulated assets in different asset classes. This is one of the best ways to diversify your investment and lower the risk on your portfolio.
All the investors partake in the risk and rewards when investing in mutual funds. Depending on how the funds are managed, mutual funds are broadly two types.
These are handled by fund managers that keep investing the collated capital into prospective assets aimed at growth. Usually, these funds aim at generating returns higher than the benchmark like Sensex and Nifty. Hence, they require the constant attention of the fund manager as it has a lot to do with the performance. These usually offer a high-risk, high-reward scheme.
These don’t require the fund manager to be proactive compared to actively managed funds. They usually have a defined set of assets under their portfolio based on the nature of the fund or the maturity goals. These funds offer moderate returns and tend to follow benchmark returns.
There are other classes of mutual funds based on the risk profile and asset class. These include sector funds that invest in businesses operating in a particular sector such as insurance or real estate; growth funds which invest in company stocks and equity shares; fixed-income funds which invest in treasury bonds, company debentures, etc.
Mutual funds are one of the country’s most popular investment options today. It’s also because the mutual fund investment process in India is simple. You’ll be surprised to find out that in FY22, mutual funds added over ₹3 Cr investor accounts as compared to 81 lakh accounts the previous year. So here’s why you should invest.
All investments are subject to market risks, so it’s advisable to read all the scheme-related documents carefully before investing. On that note, here are a few fine prints you should be aware of when choosing a mutual fund that works for you:
Investing in mutual funds is a lucrative option to grow your current savings. So regardless of whether you’re an experienced professional or a novice investor, the process for investing in mutual funds is relatively straightforward. I’m not the best at deciding on the perfect mobile for myself, but I certainly don’t want to lose out on choosing the right investment.
Learn more here: A Mutual Fund Deep Dive: Mahindra Manulife Mutual Fund
Mutual Funds are financial products that make investing effortless & safe. First, it pools money from many investors. Next, it appoints highly skilled professionals who research & invest the funds on your behalf. Money managers will track the ever-changing financial market & try to make sure your investment performs well. Plus, Mutual Funds offer complete transparency. You can quickly learn where & how your money is being invested. All this costs very little! Thus, Mutual Funds provide great value for money — especially as you start your investment journey. Invest in commission-free Mutual Funds on Fi Money
When you invest in a mutual fund, your money goes into a bunch of regulated assets in different asset classes. This is one of the best ways to diversify and lower risk levels in your portfolio. Mutual funds are broadly two types depending on how the funds are managed.
Actively managed funds:
-Has fund managers that keep investing your money & try to grow it
-Tries to generate returns higher than the benchmark like Nifty
-Offers a high-risk, high-reward scheme
Passively managed funds:
-Don’t require the fund manager to be proactive
-Usually have a defined set of assets under their portfolio
-Offer moderate returns and tend to follow benchmark returns
Mutual Funds are broadly divided based on structures, asset class, investment objectives, speciality and risks. There are 3000 mutual funds in the Indian market at the moment. But here are the 3 main types of Mutual Funds:
Such schemes select & manage stock portfolios on your behalf. Your money is placed in stocks — certificates claiming you own a microscopic slice of a company. There’s an element of risk in such investments, as it depends on how well a company fares.
Debt is a way for companies/governments to raise money; your investment is a loan to them. Borrowers typically return the cash in monthly/yearly interest payments & a principal payout. Debt funds invest in safe bonds where payback is consistent — it’s less riskier than equity.
This is a good instrument to spread your risk. Hybrid funds invest in more than one asset class like equity, debt, gold, etc. Depending on your risk appetite, you can choose the hybrid fund that suits you the best.