MUTUAL FUNDS

A mutual fund is essentially a common pool of money in which investors put in their contribution. This collective amount is then invested according to the investment objective of the fund.

The money could be invested in stocks, bonds, money market instruments, gold, and other similar assets. These funds are operated by money managers or fund managers, who by investing in line with the specified investment objective attempt to create growth or appreciation of the amount for investors.

For example, a debt fund will have its specified objective to invest in fixed income instruments, or products like bonds, government securities, debentures, etc. Similarly, an equity fund will invest in stocks and, other equity instruments.

HOW MUTUAL FUNDS WORK?

A mutual fund scheme, as many of you, may have learned, pools money from multiple investors and invests the collected corpus in shares of listed companies, government bonds, corporate bonds, short-term money-market instruments, other securities, or assets, or a combination of these investments.

The type of securities selected for the portfolio is in accordance with the investment objectives as the disclosed in the offer document. Therefore, an equity mutual fund scheme will invest predominantly in a portfolio of stocks, while a debt fund will invest a significant portion of its assets in bonds. Within the asset class itself, the investment objective can be further narrowed down.

Thus, within the broader equity mutual fund category, there can be Large-cap Funds, Mid-cap Funds, etc., that are focussed on a specific market capitalization of stocks. Based on the investment style, there can be Value Funds or Focussed Equity Funds as well.

A fund manager manages the investments in a mutual fund. There can be more than one fund manager, based on the discretion of the AMC. The fund manager/s manages the fund on a day-to-day basis, deciding when to buy and sell investments according to the investment objectives of the fund.

The mutual fund collects money from you and other investors and allots units. This is similar to buying shares of a company. Under mutual funds, the price of each fund unit is known as the Net Asset Value. The assets are invested in a set of stocks or bonds that form the portfolio of the fund. The fund manager, depending on the investment objective of the scheme, decides the portfolio allocation.

WHAT IS THE BENEFIT OF INVESTING IN MUTUAL FUNDS ?

One of the key advantages of investing in a mutual fund is that each investor (even with a small investment) gets access to professional money management and expertise. Also, it would be very difficult for an investor to create a diversified portfolio of investments on his own with a small amount of money. With mutual funds, each investor participates proportionally in the return the scheme generates.

Each unit gets a proportional share of gain (or bears loss) from the fund. There is a portfolio report generated for each investor, which tracks all investments and the returns generated by the mutual fund.

HOW TO INVEST IN MUTUAL FUNDS:

  • The best thing about mutual funds is that they enable you to invest with very small amounts via SIP (Systematic Investment Plan).
  • When you set up a SIP with any mutual fund, your account is debited a fixed amount every month. This amount is invested in a mutual fund of your choice.
  • Over a period of time, your investments accumulate and they keep growing.

Below is a step by step guide on how to choose the best fund for you:

  • Investment Goals: Fully define your investment and financial goals - “I would like to have earned Rs. x in ‘x’ number of years. I can take ‘x’ degree of risk”
  • Risk Factor: Understand how much risk you’re willing to take in order to reach your financial goals - understanding this is the key to choosing which type of mutual fund you will eventually invest in. High-risk investments have the potential to provide the highest returns but also come with the possibility that the invested capital could be lost. Medium risk investments will try their best not to lose the invested capital, but in doing so will reduce the number of funds available to invest in growth-generating investments (which are risky by nature). Low-risk investments will expose the capital to the lowest amount of risk possible. Understanding one’s risk appetite is vital to being investing correctly and is called risk profiling.
  • Asset Allocation: After discovering your risk profile and narrowing down your potential investments, you must decide which asset classes you wish to invest in. Stocks and shares of companies are the first and most popular asset class among risk-takers - also called equity - investments in this asset class usually carries a greater amount of risk and also the potential for higher earnings. The second asset class is fixed-income securities or bonds and is the most popular among risk-averse investors who prioritize the safety of their investments. These assets provide regular income and capital safety. The third asset class is money market instruments or cash equivalents which provide liquidity and a certain degree of safety. The fourth main asset class consists of commodities and real estate. A mutual fund will invest in all these asset classes proportionally, in order to provide safety as well as maximize growth potential.
  • Picking the right fund: Picking the right fund is a combination of understanding your investment goals, risk profile, asset allocation, and the total investable corpus - and matching those to mutual fund schemes (among thousands available) which has the ability to provide returns in line with your goals. This is the most time consuming, but most rewarding part of the process, as you will learn about different funds and the different unique features that some of them offer. Once you’ve narrowed it down, you can also check how it’s performed against its benchmark and how consistently it has performed, before putting your hard-earned money in it will have to match the funds against a benchmark to see how they have performed in the last 5 to 10 years, and take historical performance into account as well.
  • Picking the right AMC: Choosing the right asset management company (AMC)/fund house/bank/etc. can be as important as picking the right fund. Make sure that the company through which you’ve chosen to invest has a proven track record and has a roster of qualified and experienced fund managers - this will ensure that your money is handled by capable professionals who have faced different market conditions in the past and can actively manage your fund and keep it away from danger. The right AMC will also have a large ‘family of funds’ to choose from or to shift between, depending on the performance of your invested fund.
  • Approaching the AMC/Fund House/Bank: Once you’ve decided the fund you want, all you have to do is approach the AMC/bank, fund house offering the fund and purchase fund units in exchange for money. Alternatively, you could invest online through a paperless, fast, and secure platform like Funds India.

Investing in mutual funds

Online - You can either follow this process or try the intuitive online investment platform offered by Funds India - which assess your requirements and provides the best and top-performing funds for you to choose from. The online service is totally free, totally paperless, 100% secured online, and lightning-fast.

Mutual funds investment done online are also quicker and do not require you to step out of your comfort zone for any document verification or fund transfer. The entire process is handled efficiently online.

Can you get rich investing in mutual funds?

Yes, you can get very rich investing in the right mutual funds at the right time for the right amount. There are many resources online that can educate you in the process of picking the best fund. Online investment houses also have excellent market insights and analytics to guide this decision-making process.

Funds India has a state of the art Robo-advisor that analyses the markets and provides an unbiased view of the best investment opportunities.

How do I invest my money to make money?

Working hard is one way to make money, but in order to grow that money into more money, one must invest it. To grow rich faster than any traditional method of wealth generation, online investment portals like Funds India are gaining popularity as they allow users to invest quickly over the internet with 100% security.

If you want to invest money to make money

log onto and create a free account. A member of the investment and market research team will then contact you to help understand what your investment goals are, and how best to achieve them.

How do you make money from a mutual fund?

A mutual fund scheme invests in certain companies and opportunities. When these invested companies perform well, or the opportunities pan out in a positive way, the fund scheme earns a share of that prosperity. The share so earned is then divided amongst all investors in proportion to their investment.

How much money do you need to start investing in a mutual fund?

You can start investing in mutual funds and SIP with as little as Rs.1000.

What are the benefits of a mutual fund?

Mutual funds investment can multiply your wealth.

  • Minimal risk as compared to other investments.
  • Portfolio diversification is possible - meaning that you don’t put all your eggs in one basket.
  • More chances of success and profitable returns thanks to investment diversification.
  • Mutual funds are actively managed and employ a professional fund manager whose performance parameters are directly linked to the performance of the fund scheme.

Investments in a mutual fund through a particular AMC can be switched - meaning that the investment can be redirected into another mutual fund scheme at any time depending on market conditions.

  • ELSS investments can help you save up to Rs.1, 50,000 from taxation under Section 80C.
  • Mutual funds provide higher potential returns than any other type of Investment Avenue.
  • Mutual funds can be invested through a method called SIP - Systematic Investment Planning - which carries a host of benefits to the investor.

How safe is it to invest in mutual funds?

It is very safe to invest in mutual funds. There are thousands of mutual fund schemes in which you can invest. There are funds that expose your invested amount to a minimal amount of risk but generate relatively lower returns and on the other hand, there are some funds that expose your invested amount to a lot of risk for potential greater reward. The riskiness of the investment is always mentioned clearly in the scheme offer document.

The safety of your invested amount depends on many factors like the type of fund, classification of asset type, the fund manager, etc.

Is it the right time to invest in mutual funds?

It is always the right time to invest in mutual funds. You may have heard of fund managers and investors waiting to “time the market” correctly before they make their investments - you don’t need to do this - simply ask one of Funds India’s investment experts and market analysts which are the best funds to invest in at any particular time. At any given time, there will be certain funds performing poorly and certain funds performing exceptionally well.

Also, in the case of SIPs - the benefits of Rupee Cost Averaging and regular investment installments mean that timing the market is of little importance.

Is it good to invest in a mutual fund?

Yes, it is good to invest in a mutual fund as the money you invest will be given a chance to grow and make you richer.

Is it safe to invest in mutual funds online?

Yes, it is safe to invest in mutual funds online through Funds India - the website uses bank-level security and encryption to ensure safety and security.

What is the average return on mutual funds?

Here are thousands of mutual fund schemes that offer varying levels of returns. Usually, the higher the returns, the higher the risk, being undertaken. The returns of a mutual fund scheme vary based on many other factors as well, but the average returns generated over a certain period of time, say, 5 years, is much higher than other investments with similar lock-in periods such as FDs.