Glimpse about Mutual Fund


Kiruthiga N E

1/3/20232 min read

Like me are you wondering what is Mutual Fund? How to invest? Here is the answer...

What is Mutual Fund?

Different investor invested money pooled together and invested in the stock market and Fund manager will invest in stocks and bonds based on SEBI regulation and revise it on regular interval and we are paid based on NAV(Net Asset Value).

Many of us wanted to have more returns in long term or short terms and don't have time to research and invest in stock market or lack of knowledge and high risk factor of market investor will not directly invest in stock market.

Mutual funds are investment product which will be managed by high proficient Fund Manager and SEBI has good regulation and monitor all fund returns.

Types of Mutual Funds:

The types of mutual fund are divided based on the various factor. The major is based investment tools like Equity, Debt, Money Market, Hybrid and etc. Organisation structure like open ended, Closed Ended, Interval.

Lets start discussing the types in high level.

Mutual Fund types based on Org Structure:

Open Ended Fund: This fund allow investor to decide when to stop investment and give access to liquidate the money. These funds are priced based on Net Asset Value(NAV) based on a daily basis.

Closed Ended Fund: This fund is time bounded and locked for the period of time and fixed number of shares are assigned. This is raised based on Initial Public Offering (IPO) in stocks, bond and Money Market Instrument. The unit can be claimed only on maturity date. This can be traded in stock market.

Interval Fund: This is combination of Open and Closed ended fund. The fund is open to purchase on different interval.

Mutual Fund types based on Investment channel:

Equity Fund: This is famous and largely used fund in public where the pooled amount invested in company equities and traded. This can be further divided as Large Cap, Mid Cap and Small Cap fund, Tax saving(ELSS), Sector and Index fund.

  • Large Cap Fund: The investor invested money are pooled and used to buy 1st 100 ranked stock from exchange based on Market capitalization. Since these are highly reputed company the risk on these fund is very less and get dividend on regular interval. Good for long term investment.

  • Mid Cap Fund: Fund Manager here is investing money in stock market between 101 to 250 SEBI ranked companies based on market capitalization. These fund give good returns compared to large cap also risk is higher in this fund.

  • Small Cap Fund: Fund manager will invest in more than 250 SEBI ranked based on Market Capitalization companies. The risk is very high here at the same time user will get great return even for small hike in market. This are good for short time investment.

  • Tax Saving Fund or ELSS: Equity Linked Saving Scheme(ELSS) are best for tax savings. Can be claimed under 80C of Income Tax act. It has lock in Period of 3 years and fund invested across market capitalization.

  • Sector Fund: These are fund that is invested in specific sector, like Communication, Government, Real Estate, Energy, Technology, Financial and etc.

  • Index Fund: This is good fund mostly recommaned for retirement purpose. The fund here is invested in Stock market index like Infty50, Nasdaq 100 and etc. Here Fund Manager will work much to research on which stock to invest instead they invest in all the stock under particular index. Hence the return is based on the index performance and the risk is lower.

Debt Fund: Fund Manager will invest the pooled amount in Corporate Bond, Commercial Papers and Government Securities etc. The risk here is very low and give stable return unless market volatility. Usually corporate uses this to invest cores of money to get single day return. This can be matured in one day, 3 to 6 months, 6 to 12 months, between 1 year to 3 year and etc and the fund is also named after the time of maturity like overnight fund, Short Duration, Medium Duration, Long Duration and etc.

Hybrid Fund or Balanced Fund: Here the pooled amount of investor are invested in both equity and Debt based on investor risk tolerance. It can be Equity Oriented Fund, Debt Oriented fund, Aggressive and etc.

Money Market Fund: These are the fund that the money invested in T-Bill(Treasury Bill), Cash of Deposit or CD, Commercial Purpose. This fund is again for lower risk tolerance investors.

Advantages of Mutual Fund:

  1. The fund can be managed by professional fund manager.

  2. Investor risk tolerance are taken into consideration.

  3. Can start with smaller investment , SIP can be started with as low as 500 per month.

  4. Easily liquidate in 3-4 days and get money back in open ended funds.

  5. Highly regulated by SEBI(Securities and Exchange Board of India) India.

  6. Tax benefit can be claimed under 80c income tax act.

Last but not least...

Now you can understand why they say - Mutual funds investment are subject to market risk. Please read the scheme related document before investing. Past performance of schemes is neither a proof or guarantee for future returns.

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