- What are Mutual Funds in India?
- Advantages and benefits of investing in Mutual Funds in India
- Disadvantages of Mutual Fund
- How to Invest in mutual funds through Scripbox?
- Comparing Mutual Fund with other Investment Option
- A lump sum or through SIP in an equity mutual fund?
- What are the top performing equity funds to invest in India?
- What are the top performing debt funds to invest in India?
- What are the top performing Tax Saver ELSS Fund to invest in India?
- What are the top performing Liquid Funds to invest in India?
- What are the types of mutual funds?
- Frequently Asked Questions
Any Investment plan has its own advantages, be it for a short term or long term. Investors are usually keen on investing in Mutual Funds because of the risk management. However, needless to say, these investments also come with some disadvantages. But before we dwell upon the advantages and disadvantages of Mutual Funds let us first know what Mutual Fund scheme is.
A Mutual Fund scheme is a type of financial instrument which is made by a pool of money collected from many investors. The AMCs invest in securities like company shares, bonds, stocks, debts, and other assets by mutual fund companies. The AMCs manage these open-ended investments. Mutual fund companies allocate the fund in different securities. This helps its investors to grow their wealth through their investments
The capital gain on a Mutual Fund scheme depends on the performance of the securities it decides to buy. The market condition is also a factor that determines the value of the particular security purchased.
The income or gain generated from these investments is then distributed among the investors. The distribution is done post deduction of certain expenses, by calculating the Net Asset Value of the scheme.
Mutual Funds can be a higher risk investment but the returns are generally greater than in any other investment plan.
Mutual Funds have both advantages and disadvantages. The advantages of investing include professional management, low risk, diversification, liquidity, economies of scale. The disadvantages of investing include the high fee, poor trade execution, tax inefficiency., etc.
Advantages and benefits of investing in Mutual Funds in India
The most important benefit of investing in a Mutual Fund is that the investor can redeem the units at any point in time. Unlike Fixed Deposits, Mutual Funds have flexible withdrawal but factors like the pre-exit penalty and exit load should be taken into consideration.
The value of an investment may not rise or fall in tandem. When the value of one investment is on the rise the value of another may be in decline. As a result, the portfolio’s overall performance has a lesser chance of being volatile.
Diversification reduces the risk involved in building a portfolio thereby further reducing the risk for an investor. As Mutual Funds consist of many securities, investor’s interests are safeguarded if there is a downfall in other securities so purchased.
A novice investor may not have much knowledge or information on how and where to invest. The experts manage and operate mutual funds. The experts pool in money from investors and allocates this money in different securities thereby helping the investors incur a profit.
The expert keeps a watch on timely exit and entry and takes care of all the challenges. One only needs to invest and be least assured that rest will be taken care of by the experts who excel in this field. This is one of the most important advantages of mutual funds
Flexibility to invest in Smaller Amounts
Among other benefits of Mutual Funds the most important benefit is its flexible nature. Investors need not put in a huge amount of money to invest in a Mutual Fund. Investment can be as per the cash flow position.
If You draw a monthly salary then you can go for a Systematic Investment Plan (SIP). Through SIP a fixed amount is invested either monthly or quarterly as per your budget and convenience.
Accessibility – Mutual Funds are Easy to Buy
Mutual Funds are easily accessible and you can start investing and buy mutual funds from anywhere in the world. An asset management companies (AMC) offers the funds and distributes through channels like :
- Brokerage Firms
- Registrars like Karvy and CAMS
- AMC’S Themselves
- Online Mutual Fund Investment Platforms
- Agents and Banks
This factor makes mutual funds universally available and easily accessible. More so, you do not require a Demat Account to invest in Mutual Funds. Mutual funds are easy to buy, track performance and one-click investment with Scripbox
Schemes for Every Financial Goals
The best part of the Mutual Fund is the minimum amount of investment can be Rs. 500. And the maximum can go up to whatever an investor wishes to invest.
The only point one should consider before investing in the Mutual Funds is their income, expenses, risk-taking ability, and investment goals. Therefore, every individual from all walks of life is free to invest in a Mutual Fund irrespective of their income.
Safety and Transparency
With the introduction of SEBI guidelines, all products of a Mutual Fund have been labeled. This means that all Mutual Fund schemes will have a color-coding. This helps an investor to ascertain the risk level of his investment, thus making the entire process of investment transparent and safe.
This color-coding uses 3 colors indicating different levels of risk-
- Blue indicates low risk
- Yellow indicates medium risk, and
- Brown indicates a high risk.
Investors are also free to verify the credentials of the fund manager, his qualifications, years of experience, and AUM, solvency details of the fund house.
In a Mutual Fund, funds are collected from many investors, and then the same is used to purchase securities. These funds are however invested in assets which therefore helps one save on transaction and other costs as compared to a single transaction. The savings are passed on to the investors as lower costs of investing in Mutual Funds.
Besides, the Asset Management Services fee cost is lowered and the same is divided between all the investors of the fund.
Best Tax Saving Option
Mutual Funds provide the best tax saving options. ELSS Mutual Funds have a tax exemption of Rs. 1.5 lakh a year under section 80C of the Income Tax Act. You can use Scripbox’s income tax calculator to ensure tax plan requirement
All other Mutual Funds in India are taxed based on the type of investment and the tenure of investment.
Lowest Lock-in Period
Tax Saving Mutual Funds have the lowest lock-in periods of only 3 years. This is lower as compared to a maximum of 5 years for other tax saving options like FD, ULIPs, and PPF.
On top of that one has the option to stay invested even after the completion of the lock-in period.
Lower Tax on the Gains
With Equity linked saving scheme you can save tax up to Rs. 1.5 Lakh a year under section 80C of Income Tax (IT) Act. All other types of Mutual Funds are taxable depending on the type of fund and tenure.
Before making an investment one should keep in mind the various advantages Mutual Fund provides. Thorough knowledge of the benefits of Mutual Funds would lead to better gains in the future.
Although there are a lot of advantages of investing in Mutual Funds, there are certain disadvantages as well
We will now learn about the disadvantages of Mutual Funds.
Disadvantages of Mutual Fund
Cost to Manage the Mutual Fund scheme
As mentioned above, Market Analysts or Fund Managers manage and operate the mutual funds. These Fund Managers work for the fund houses that manage huge investments every day. This requires a lot of efficiencies, expertise, and experience in the subject matter.
Due to dilution, it is not recommended to invest in too many Mutual Funds at the same time. Diversification, although saves an investor from major losses, also restricts one from making a higher profit.
Equity-linked Saving Scheme (ELSS) have a longer lock-in period of 3 years. This debars an investor from withdrawing the investment before the lock-in period is over. However, withdrawing these funds before the lock-in period could lead to huge penalties.
A portion of the fund is kept in cash to safeguard investor’s interest . This is done to compensate the investor in case he desires to withdraw the fund before maturity. This part of the cash fund does not earn any interest.
In spite of it having certain disadvantages, Mutual Funds in India are considered one of the best investment plans. The advantages and long term benefits one incurs when investing in a Mutual Fund makes it a win-win situation for all. The professional expertise makes it easier even for a novice to investing without having any idea about it.
Here at Scripbox our expert market professionals analyze and research the different Mutual Funds available. With proper market research, we bring to you the best investment plans which would allow our investors to gain profits.
How to Invest in mutual funds through Scripbox?
To achieve their financial goals one needs to go through a lot of processes that may not be simple for a new investor. We, at Scripbox, make sure that our investors achieve their financial goals. We ensure that the investing journey of our esteemed investors is smooth and hassle-free. Mutual Funds are easy to buy and track with Scripbox
We understand our investors and accordingly have scientifically and algorithmically selected Mutual Funds. Our experts have set a comprehensive plan using our advanced tools to estimate the goals of our investors. We also create a personalized financial plan keeping in mind the goals of our investors.
At Scripbox, we allow our investors to choose how their investments grow while balancing the growth and risk ratio. Investors are also free to change their investment styles along the way. Our investors are free to track their progress from time to time.
Once the financial goal of an investor is achieved, the investors are allowed to glide their path by moving to lower risk plans. This helps them in securing their gains and thereby reducing the mark to market risk.
Steps to invest
- Start Investing through Scripbox for the following benefits:
- Scientifically and algorithmically selected Mutual Funds
- Annually reviewed
- One-click Investment
- Easy to Track
- Customizable to suit the investment
- Helps achieve wealth goals
To invest through Scripbox one needs to open an account with Scripbox by clicking on SIGN-UP and providing the data we need. Once an account is opened you can start investing depending on the following things:
- If the investor has already done the one time Know Your Customer (KYC) for Mutual Funds
- One Time KYC for first time Mutual Fund Investors.
- Monthly Systematic Investment Plans (SIP)for automated investing.
Comparing Mutual Fund with other Investment Option
Inflation always has an adverse effect on the market scenario. As the value of money decreases with inflation, it becomes very important to invest your money in the right sector. Money left uninvested may lose its purchasing power as time passes.
It is very important to know where and how to invest and which channel would fetch the maximum profit.
Investing in Equity brings high risk but the returns are also high as compared to other investment plans. An investor must always keep in mind the risk factor and the investment goal
Time is another factor that an investor must consider before investing such as short term, medium-term, and long term.
Now that we know the advantages of mutual funds, let us now compare Mutual Funds with other investment options
Mutual Fund Vs Public Provident Fund (PPF)
PPF is a Long term investment plan with a lock-in period of 15 years. Though this investment is one of the most preferred options, however, due to the reduced return this has started losing its preference.
Moreover, the low returns are subject to higher liquidity and growth. Scipbox’s PPF calculator will help you estimate the interest earned and maturity value. the PPF calculator is easy to use and provides a detailed investment schedule
Mutual Funds do not have any lock-in period. There is flexibility in tenure for which one wants to invest.
PPF’s are tax-free up to a limit of Rs. 1.5 lakh annually. Even the returns generated from PPFs are tax exempted under section 80C of the Income Tax (IT) Act.
With ELSS Fund an investor can save tax up to Rs. 1.5 Lakh a year under section 80C of Income Tax (IT) Act. All other types of Mutual Funds are taxed based on the type of fund and tenure.
Mutual Fund Vs NSC
Talking of low risk and higher returns, NSC is said to be a better option for investment and save tax benefit. ELSS fund, on the other hand, can be invested through Mutual Funds in Equity Market and avail tax benefits depending on risk and returns.
Lock-in period for NSC is 5 to 10 years while in an ELSS Fund lock-in period is 3 years but one can continue even after the lock-in period without taking the cash out.
Mutual Fund Vs NPS
NPS as compared to Mutual Fund has lesser returns. NPS has a limited reach to equity, stocks, and shares while through Mutual Funds one can purchase unlimited equity shares.
As compared to ULIp’s, Mutual Funds are more transparent in matters of the fee charged and the portfolio holdings. Mutual Funds have lower expenses as compared to ULIPs which are much higher than in the case of Mutual Funds.
Returns from ULIP are lesser as compared to the returns from Mutual Funds. The lock-in period for ULIPs ranges from 3 years to 5 years depending on the investment scheme.
ULIPs too has a tax exemption of Rs. 1.5 lakh a year, while only ELSS funds have tax exemption than any other Mutual Fund.
In a Fixed Deposit (FD), the returns are pre-determined. The FD bank rates does not change throughout the tenure for which the money is deposited. While in Mutual Funds the scope of earning is unlimited. The longer the tenure the higher the return.
However, you must estimate your expected interest earnings for better planning by using Scripbox’s FD calculator. Our FD calculator is easy to use, accurate results with a detailed guideline on fixed deposits
The returns on Fixed Deposit are taxable at the tax slab of the investor. In a Mutual Fund the taxation mainly depends on the holding period. The tax implication on short term and long term are different for Mutual Funds.
Mutual Fund Vs. Gold ETF
An investor can either physically possess or invest upon electronically gold. This has of late become a very popular investment. The risk factor here is relatively low with better liquidity options.
ETF is listed on the Stock Exchange and hence the same is traded in the market with no exit load. This enables investors to buy/ sell at any time. ETFs usually have a lower management cost than Mutual Funds.
An ETF with a holding period for more than 36 months, qualify as long term capital gain. LTCG has a tax rate of 20%. The tax saving avenue under section 54 and section 54EC would apply for a long term capital gain on ETFs.
A lump sum or through SIP in an equity mutual fund?
There are two main ways through which you can invest in a Mutual Fund- Lump sum and Systematic Investment Plan (SIP).
A Lump Sum Investment is one where you invest a single amount of money in one go.
Systematic Invest Plan (SIP) where you invest small amounts periodically. The frequency of the investment can be either weekly, monthly, or quarterly depending on the investor.
Return in a Lump Sum investment depends on the market. A volatile market can adversely affect the return of a long term investment whereas SIP can still yield good returns.
Lump Sum investment can yield good returns provided the same is timed properly and tactfully. Though it is very difficult for any investor to time their investment correctly failing which one can incur huge losses.
You should choose a Lump Sum investment if you can invest for a long time with a high capability of taking risks. Debt investments are for those who have a lower risk-taking capacity but still want to consider Lump Sum investment. Here the returns are moderate but the losses are less.
SIP enables one to lower the average cost of the investment thereby reducing the risk on the investment. This is called the rupee-cost averaging. An investor can buy Mutual Funds at different prices. This further helps in lowering the purchase cost resulting in higher chances of earning profits.
You can use Scripbox’s SIP calculator to estimate the returns earned and maturity value. The SIP calculator is easy to use and helps you plan your investment to suit your financial goals. Click here to know more on SIP Calculator
What are the top performing equity funds to invest in India?
The following are the top Mutual Funds as recommended by Scripbox:
|Kotak Standard Multicap Growth||Diversified|
|Mirae Asset Large Cap Fund Regular Growth||Large Cap|
|Axis Bluechip Fund Growth||Large Cap|
|Invesco India Growth Opportunities Fund-Growth||Diversified|
What are the top performing debt funds to invest in India?
The following are the top mutual funds as recommended by Scripbox:
|Axis Liquid Fund Growth||Liquid|
|Kotak Savings Fund Growth||Ultra Short|
|ICICI Prudential Savings Fund G||Duration|
What are the top performing Tax Saver ELSS Fund to invest in India?
The following are the top mutual funds as recommended by Scripbox
|Motilal Oswal Long Term Equity Fund – Regular Plan-Growth||Tax Saver|
|Mirae Asset Tax Saver Fund -Regular Plan-Growth||Tax Saver|
What are the top performing Liquid Funds to invest in India?
The following are the top performing Liquid Funds as recommended by Scripbox:
|Axis Liquid Fund Growth Mutual Funds Investments||Liquid|
|Tata Liquid Fund Regular Growth||Liquid|
What are the types of mutual funds?
Below are the four broad types of Mutual Funds:
- Equity Funds:- Investments made in stocks
- Fixed-Income Funds:- Investment made in bonds
- Money Market Funds:- Short term debts
- Balanced Fund or Hybrid Funds:- Stocks and Bonds
Now let us categorize these Mutual Fund investment in India based on the:
- Asset Class
- Speciality Fund, and
- Investment Objective
|Asset Class||Structure||Specialty Funds||Investment Objective|
|Equity Mutual Funds|
1. Large cap Fund
2. Multi cap Fund
3. Small Cap Fund
4. MidCap Funds
5. MidCap Funds and Large Cap Fund
6. Equity Linked Saving Scheme (ELSS)
7. Gold Fund
8. Contra Funds
9. Value Fund
10. Sectoral/ Thematic Fund
|Open-ended Mutual Funds||Index Funds||Growth Mutual Funds|
|Debt Funds or Close Ended Mutual Funds|
1. Money market fund
2. Liquid Fund
3. Overnight Fund
4. Short Term Fund
6. Ultra Short Term Fund
7. Mid Term Fund
8. Long Term Funds
9. Corporate Bond Fund
10. Banking and PSU Funds
11. Gilt Fund
12. Dynamic Bond Fund
|Close-Ended Mutual Funds||Funds of Fund||Income Mutual Fund|
|Money Market Mutual Funds||Interval Funds||Commodity Mutual Funds||Liquid Mutual Funds|
|Balanced Fund or Hybrid Mutual Funds |
1. Balanced Fund
2. Conservative Hybrid Fund
3. Aggressive Hybrid Fund
4. Dynamic Asset Allocation Fund
5. Equity Saving Fund
6. Arbitrage Fund
7. Multi- Asset Allocation Fund
|Asset Allocation||Tax Saving Mutual Funds |
Equity Linked Saving Scheme (ELSS)
Investing in a good plan not only derives a good profit but also secures one’s life. Money invested now will lead to a safer tomorrow. Hence, one should plan an investment according to one’s needs and risk-taking capacity
With advantages of mutual funds like expert management, cost-efficiency, hassle-free process, tax-efficiency this makes for a better investment scheme.
In this article, we have explained the advantages of mutual funds and benefits along with the disadvantages.
We advise investors to estimate the investment returns and maturity before investing. This will ensure your investment plans match your financial goals. You can use Scripbox’s SIP calculator and income tax calculator to estimate your returns and tax plan requirements
Frequently Asked Questions
One can invest in mutual funds through SIP or lumpsum investment. At the same time, SIP refers to periodic investments of a fixed amount on a predetermined date every month, whereas lumpsum refers to a one-time investment. Most of the mutual funds demand a minimum lump sum investment of Rs. 1000 to 10,000. However, investors can start a SIP of Rs.500 every month. There are some AMCs that accept SIP investment as low as Rs.100 every month. Therefore, investors can choose to invest Rs.1000 or even lower based on their financial capability and future financial goals.
One can cash out their mutual fund holdings as long as it is an open-ended fund. Both equity fund and debt fund are quickly withdrawn after the investment is made. For instance, an investor can withdraw their mutual fund investment the next day post-investment. However, one should always keep in mind the exit load. i.e. the penalty fee that the mutual fund charges for early withdrawals.
Both equity and debt mutual funds have different periods for exit load. Usually, equity schemes charge an exit load of 1% if the fund is withdrawn within a year.
Furthermore, it takes T+1 days for the funds to receive the investor’s bank account in debt funds withdrawals. For equity funds, it takes T+3 days for funds to credit investors’ bank account. Therefore, liquidity is one of the most significant advantages of mutual funds.
The profit and loss in a mutual fund depend on the financial market’s performance and the underlying security performance. Hence, there is no guarantee that you will not lose money in mutual funds. However, it is always advisable to understand how mutual funds work before investing in them. Mutual funds are professionally managed by fund managers who invest in a wide variety of stocks, bonds and commodities. It is not that all mutual funds will fail to perform. Therefore, the profit and loss of a mutual fund depend on various factors such as market volatility, economic growth, stock performance, etc.
When you are losing money in mutual funds, this does not mean that you should start redeeming your funds. One should think twice when you see the markets are performing poorly. Moreover, investment in mutual funds is made for longer horizons. Investors can also choose the SIP route for leveraging the rupee cost averaging benefit. i.e. adding more units when markets are falling.