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What is a Mutual Fund? Best Mutual Fund Investments, Meaning, Types and Related Terms
Mutual fund is a professionally managed investment fund that pools investment from various investors and invests in capital assets to match the investor’s financial goals.
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What is a mutual fund & its advantages?
A mutual fund is a collection of investments made by individual investors and used to purchase securities in the capital market. The best part about mutual funds is that a team of experts along with the fund manager picks all the investments to build a portfolio.
With wide availability of mutual funds schemes, it is easier for an investor to choose the most suited scheme for their financial goals.
Expert Money Management
Mutual funds are managed by professionals, providing expert guidance. The experts meticulously decide the sectors, allocation of assets, and finally buying of securities.
Diversification
Mutual funds allow an investor to invest in diversified portfolios of equity, or debt market capitalizations and sectors and even internationally.
SIP
SIP allows you to invest a fixed amount at regular intervals and help plan your periodic investments. The is flexible and better for mitigating timing risk.
Low Cost
Mutual fund is a cost-effective investment considering the professional expertise, diversity and flexibility. A fee ranging from 0.5% to 1.5% is charged.
Meet Financial Goals
Each investor invests in mutual funds with a financial goal. Mutual funds with diversified portfolios & risk factors help achieve your objectives.
Lock-in Period
Lock-in period is the duration for which you are not allowed to redeem the units of the fund. This differs across funds. For ELSS the lock-in period is 3 years.
Further reads for you
What are the different types of mutual funds?
Equity mutual funds invest at least 65% of their assets in listed companies across market capitalizations to earn higher returns than debt or hybrid mutual funds. These funds are suitable for investors having high to medium risk-appetite along with an investment horizon of more than 5 years.
- Index Funds
- Large Cap
- Mid Cap
- Small Cap
- Tax Saving
- Sectoral / Thematic – BFSI
- Sectoral / Thematic – Commodities
- Sectoral / Thematic – Consumption
- Sectoral / Thematic – Energy
- Sectoral / Thematic – ESG
- Sectoral / Thematic – Ethical
- Sectoral / Thematic – Infra
- Sectoral / Thematic – Manufacturing
- Sectoral / Thematic – MNC
- Sectoral / Thematic – Pharma and Healthcare
- Sectoral / Thematic – PSU
- Sectoral / Thematic – Quant
- Sectoral / Thematic – Services
- Sectoral / Thematic – Special Situations
- Sectoral / Thematic – Technology
Debt funds are mutual funds that invest primarily in fixed income generating instruments providing relatively stable returns. They are comparatively better than the investment options of the same category like fixed deposit, savings bank account etc.
- Banking and PSU
- Corporate Bond
- Credit Risk
- Dynamic Bond
- Floater
- Gilt
- Gilt with 10 year Constant duration
- Liquid
- Long Duration
- Low Duration
- Medium Term
- Medium to Long Duration
- Money Market
- Overnight
- Short Term
- Ultra Short
Hybrid mutual funds invest in both equity securities and debt instruments seeking diversification. It aims to create wealth in the long run along with income in the short-run through a balanced portfolio.
- Aggressive Hybrid
- Arbitrage
- Conservative Hybrid
- Dynamic Asset Allocation or Balanced Advantage
- Equity Savings
- Multi Asset Allocation
International mutual funds invest in equity securities and debt instruments of foreign markets. The advantage of investing in an International mutual fund is of portfolio diversification across countries, economies and market capitalization.
- International – Others
- International – Sectoral / Thematic
- US Equity
Important Mutual Fund Terms
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How to plan tax saving with mutual funds?
You can save tax and create wealth by investing in mutual funds by investing in ELSS. ELSS invests predominantly in equity securities across market capitalization and industry sectors that aims to provide wealth creation in the long term.
Investment in ELSS is eligible as a deduction upto Rs 1.5 lakh with the shortest lock-in period of 3 years as compared to other tax saving investment option in the similar category.
This way you can save taxes and create wealth with mutual funds.
Further reads for you
How to invest in mutual funds with Scripbox?
Time needed: 30 minutes.
Learn how to open an account, choose a plan of your choice and start investing with Scripbox
- Sign-in
Sign-in to your account from here
- Create New Plan
Select the plan that suits your financial goal
- Start Investing
Click the START INVESTING action
- Choose among the best recommended mutual funds
Set your investment mode, recommended funds and amount
- Invest through Net Banking or UPI
Input your payment details and submit. Or you can schedule your investment for a future date.
Calculate your returns with our calculators
Being an investor planning must always be your very first step towards your investment journey. You can use our tools such as SIP calculator, Lumpsum Calculator, PPF Calculator etc and assess the investment option whether it meets your financial goals or not.
Frequently Asked Questions
The investments made by individual investors are pooled together and invested in capital assets building a portfolio of different assets and industry sectors. The portfolio or fund is managed and operated by professional experts. The mutual fund’s return is dependent on the performance of the underlying assets in which the amount is invested.
Before investing in mutual fund scheme as an investor you must consider the following factors.
– Past performance of the scheme on grounds of consistency, benchmark index, other schemes within the same category.
– Experience of the fund manager
– Expense ratio
– Does the scheme match your investment objective and risk appetite.
A systematic investment plan (SIP) is a process of investing in mutual funds periodically at a fixed and regular intervals. SIP allows you to plan your investment plan keeping your income and expenses in mind.
It provides you with the flexibility to stop your installments or increase/ decrease your investment amount. It is a better option for new investors who have less knowledge of the market and do not wish to invest a lumpsum amount in mutual funds.
Investing in stocks or shares directly is riskier than investing in mutual funds. The risk in mutual funds is spread among the asset classes and industry sectors leading to diversification.
Mutual funds are managed by experts who closely monitor the performance of the underlying assets while in case of stock you have to do an extensive research before investing and closely monitor post investments.
Mutual funds provide other benefits like tax saving, lower cost of investment, diversification, control on investments through SIP and lump sum.
Due to these benefits mutual funds are considered as a better investment option over stocks.
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