Best Mutual Funds to Invest for Beginners : Mutual Fund: Things you should know in the beginning – Things you should know as a mutual fund beginner : It is very important how to invest additional money deposited with you. One of the most attractive reasons for your good economic life is investment. The main thing is that there are only two ways to earn money: by working or your own assets should work for you. Mutual funds have become incredibly very popular options for all types of investors. Many people these days want to invest in mutual funds.
But many people are still unaware of how to start this process and how to choose the right mutual fund for you. Therefore, before you start investing in mutual funds, we understand every aspect of it very closely. is.
What is a Mutual Fund? – What are mutual funds?
Mutual funds are an investment method that basically collects stocks or bonds that are managed by professionals from asset management companies. Investors invest their money in various types of mutual fund units based on their risk and time of investment. Mutual funds work in a very effective way to increase your savings as well as lower costs and save on tax.
Many people follow the stock market and want to invest in the stocks offered by different companies but they always fear that they do not have enough knowledge of the stock market or do not have enough time to market Can not track properly and neither can know about the latest news going on in the market so that it can avoid making any wrong decision.
Mutual funds are the perfect solution to their problem, as well as investing directly in the equity market is risky. In very simple words, you can say that a mutual fund is like a company in which a group of people come together and think about their money investment as a company and their money investment is something. The selected skim performs. Each investor mutual fund owns its own shares which represent a portion of its holdings.
Investing in a mutual fund is different from investing in stock shares. Unlike stocks, mutual funds do not give voting rights to their share holders. Mutual funds represent investments in many different stocks (or other securities) rather than investing in just one holding. Each mutual fund has one or more fund managers. The fund manager is selected on the basis of their knowledge in different domains, which invests in a certain mutual fund. There are many types of mutual funds whose information is given below.
What are the different types of mutual funds? In which you can invest . – Different types of mutual fund schemes
Depending on the objectives of the investment,
these mutual fund schemes can be broadly divided into the following schemes:
1. Equity Schemes – Equity Scheme
This scheme invests the money invested by investors in the stock market. Equity mutual funds have a high level of risk and investors are advised to look at all types of risk based on their ability to invest. Invest only. The stock market in India is broadly divided on the basis of market capitalization, calculated by multiplying the number of shares a company offers with the current market rate of one share. SEBI (Securities and Exchange Board of India) has defined these three categories based on market capitalization.
- Large Cap : Top 100 Companies in Market Capitalization
- Mid Cap : 101 to 250 Companies in Market Capitalization
- Small Cap : 251st Company on Wards in Market Capitalization
SEBI has decided on a total of 11 categories under the equity scheme, whereas a mutual fund company can have only 10 categories so it has to choose between Value or Contra Funds.
The categories are as follows:
|S.no||Equity mutual fund||Description|
|1||Multi cap fund||Equity and equity related instruments have 65% of minimum investment-total assets. In these funds, money is invested in many capitalization companies.|
|2||Large cap fund||Equity and equity related instruments of large cap companies should have a minimum investment of 80% of the total assets.|
|3||Large & Mid Cap Fund||Equity and equity related instruments in large-cap and mid-cap companies should have minimum investment-35% of total assets.|
|4||Mid cap fund||Equity and equity related instruments in mid cap companies should have a minimum investment of 65% of the total assets.|
|5||Small cap fund||Equity and equity related instruments in small cap companies should have a minimum investment of 65% of the total assets.|
|6||Dividend yield fund||This scheme mainly invests in dividend yield fund stocks. Minimum investment in equity should be 65% of total assets|
|7||Value Fund *||Equity mutual funds follow the value investment strategy. Equity and equity-related instruments should have a minimum investment of 65% of the total assets.|
|8||Contra Fund *||Equity mutual funds follow the value investment strategy. Equity and equity-related instruments should have a minimum investment of 65% of the total assets.|
|9||Focused fund||An equity scheme invests in a maximum of 30 stocks (mentions which scheme it wants to focus on such as multi cap, large cap, mid cap, small cap). The minimum investment in equity and equity related instruments should be 65% of the total assets|
|10||Sectoral / thematic fund||Sector funds invest in stocks of companies that operate in a particular industry or economy, such as banking, infra, rural, pharma etc. The minimum investment in equity and equity related instruments should be 80% of the total assets.|
|11||Equity Linked Saving Scheme (ELSS)||ELSS is a highly dedicated mutual fund scheme that helps investors save tax and also provides an opportunity to raise money over the long term. The minimum investment in equity and equity related instruments should be 80% of the total assets|
* Mutual Fund allows to permit only one of the Value Funds or Contra Funds.
2. Debt Scheme – Debt Scheme
These types of mutual funds mostly invest in debt instruments, such as corporate bonds, government bonds, bonds issued by banks, etc. These mutual funds are best for investors who are risk-averse. SBEI covers a total of 16 categories under Debt Schemes.
These categories are as follows:
|S.no.||Debt mutual fund scheme||Description|
|1||Over night fund||Investing in overnight securities gives maturity in a single day.|
|2||Liquid fund||Investing in debt and money market securities with a maturity of only 91 days|
|3||Ultra Short Duration Fund||Investments in debt and money market equipment: The period of maturity is between 3 months to 6 months.|
|4||Low Duration Fund||Investments in debt and money market equipment Portfolio period is between 6 months to 12 months.|
|5||Money market fund||Invest in money market equipment with maturity up to 1 year|
|6||Short duration fund||Invest in debt and money market equipment Portfolio duration is between 1 year to 3 years|
|7||Medium Duration Fund||Invest in debt and money market equipment Portfolio duration is between 3 years to 4 years|
|8||Medium to Long Duration Fund||Investments in debt and money market equipment Portfolio period is between 4 years to 7 years|
|9||Long duration fund||Investments in debt and money market equipment Portfolio period is more than 7 years|
|10||Dynamic bonds||Investment for full duration|
|11||Corporate bond fund||Lowest Investment Corporate Bond at Highest Rate – 80% of Total Assets|
|12||Credit risk fund||Lowest investment in minimum investment corporate bonds – 65% of total assets|
|13||Banking & PSU fand||Investment in banks’ debt instruments, public sector instruments, public financial interests – 80% of total assets|
|14||Gilt fund||Minimum Investment in Gsecs – 80% of Total Assistance|
|15||Gilt Fund with 10 years Constant Duration||Minimum investment in Gsecs – 80% of total assets is equal to 10 years of portfolio portfolio|
|16||Floater fund||Minimum Investment in Floating Rate Instruments – 65% of Total Assistance|
3. Hybrid Schemes – Hybrid Scheme
Hybrid schemes invest money in both debt and equity and in other related instruments.
These are diversified mutual funds that have a very good balance between risk and return on investment and these days are the most popular mutual funds.
There are 7 categories under the hybrid scheme by SEBI.
These categories are as follows:
|S.no.||Hybrid Mutual Fund Schemes||Description|
|1||Conservative Hybrid Fund||They mainly invest in debt instruments. 10-25% of total assets in equity related instruments and 75-90% of total assets in debt instruments|
|2||Balanced Hybrid Fund *||Equity and debt instruments have a 50-50% investment. There is no place for arbitration in this scheme.|
|3||Aggressive Hybrid Fund *||They mainly invest in equity and equity related instruments. 65–80% of total assets in equity related instruments and 20–35% of total assets in debt instruments.|
|4||Dynamic Asset Allocation Balanced Advantage Fund||A hybrid mutual fund that changes its equity exposure based on market conditions|
|5||Multi-asset allocation||They invest in all three types of assets with a minimum allocation of 10% each. Foreign investment is considered as a separate asset.|
|6||Arbitrage fund||This scheme follows the arbitrage strategy. The minimum investment in equity and equity related instruments is 65% of the total assets.|
|7||Equity saving||It invests in equity, arbitrage and debt in the scheme. Equity-related instruments hold 65% of minimum investment total assets and Debt has 10% of minimum investment total assets.|
* Mutual funds will be allowed to make an offer to either an aggressive hybrid fund or a balanced fund.
4. Solution Oriented Schemes – Solution Oriented Scheme
There are 2 categories of mutual funds in these schemes.
The categories are as follows:
|S.no.||Solution oriented schemes||Description|
|This scheme has a lock-in for at least 5 years or till the age of retirement, whichever is earlier.|
|2||Children’s Fund||This scheme is locked in for at least 5 years or until the child attains the age of majority.|
They have 2 categories:
The categories are as follows:
|1||Index Funds / ETFs *||Minimum investment in securities of a perticular index – 95% of total assets|
|2||FoF’s (Overseas / Domestic)||95% of the minimum investment-total assets in the underlying fund|
* ETF-Exchange Traded Fund
Depending on the type of plan – Based on the plan
In 2012, SEBI brought a number of important reforms including introduction of direct plans in mutual funds. As of January 1, 2013, each mutual fund in India has two types – a regular plan and a direct plan.
1.Direct Plan Mutual Fund – Direct Plan Mutual Fund : Mutual funds where asset management companies (AMC) do not charge distributor expenses, trail fees and transactions. Their expense ratio is very low. This means that, as an investor, you will get higher returns from your mutual fund even after having the same portfolio. Direct plans do not charge for distribution expenses or commission, which results in lower annual charges in comparison to regular plans. Hence there is a separate (high) NAV.
2.Regular Plan Mutual Fund- Regular Plan Mutual Fund :In regular plan mutual funds, the middle man or brokers pay sales commission money which brings them to business. Mutual funds are sold mainly through brokers and intermediaries. The commission earned by selling mutual funds is added to the fund’s expense ratio. Remember, both versions are the same stocks that invest in the same stocks and bonds by the same fund manager. The difference is that in the case of direct mutual funds, there is no commission of a broker or a distributor. Which means, as an investor you get high returns directly from that mutual fund.
Based on maturity period – Based on the maturity period
1.Open Ended Mutual Fund – Open-ended mutual fund
An open-end mutual fund is a fund that has no restriction on the amount of shares to be issued by the fund. These plans purchase units on a daily basis, therefore, allowing the investor to enter and exit as per their performance.
2.Close-ended mutual fund – Close – ended mutual fund
A close-ended fund is a fund that has a fixed maturity period, for example 3 to 6 years. These funds are open to subscribe for a fixed period at the time of their launch. These funds are listed on the stock exchange.
3.Interval Mutual Fund – Interval Mutual Fund
Interval funds combine both open-ended and closed-end funds. These funds can trade on the stock exchanges and open for sale or redemption at a fixed interval on the current NAV.
How are mutual funds for tax returns in India? – Mutual Fund tax and returns
Money earned by mutual fund investment is also an income form (capital gains), hence it is also taxed (capital gains tax) Tax on profits in mutual funds according to its holding period and depending on the type of mutual fund. But varies.
Holding period in mutual funds – holding period in mutual funds
An income earned by mutual fund investment through you is also an income
The form is (capital gains), so it is also taxed (capital gains tax) . The tax on profit in a mutual fund varies according to its holding period and depending on the type of mutual fund.
|Type||Short-term holding||Long-term holding|
|Equity fund||Less than 12 months||12 months or more|
|Balanced Fund||Less than 12 months||12 months or more|
|Debt fund||Less than 36 months||36 months or more|
Tax on capital gains from mutual funds – Tax on capital gain
Tax rates on capital gains in mutual fund plans are as follows:
|Type||Short term capital gains||Long term capital gains|
|Equity fund||15%||10% without indexation|
|Balanced Fund||15%||10% without indexation|
|Debt fund||According to the tax slab of individual investor||20% after indexation|
* Long-term capital gains tax on equity oriented funds was zero before the announcement of Union Budget 2018. In the Union Budget 2018, the Finance Minister introduced a long term capital gains tax of 10% on capital gains of more than ₹ 1 lakh annually. ** Further, this tax is applicable only if LTCG tax is above ₹ 1 lakh in a financial year. Therefore, if an investor has earned a long term capital gain of ₹ 1,20,000 in a year, then LTCG tax is applicable only for ₹ 20,000 meaning ₹ 1,20,000 – ₹ 1,00,000.
Tax on dividend in mutual funds – Tax on dividend
While dividend in the debt oriented scheme is zero, it is known as dividend distribution tax (DDT). DDT is a tax levied on companies based on the dividend paid by the government to the company’s investments. DDT is 25% plus, 12% surcharge plus 3% balance on all non-equity funds such as money market, liquid, and debt funds, which comes to a total of 28.84%. Finance Minister Shri Arun Jaitley has proposed to impose DDT tax on equity mutual funds at the rate of 10% in his Union Budget 2018 to provide a good level of growth oriented and dividend distributing schemes. Investor who does not pay DDT tax directly. The fund house deducts this from the NAV of the scheme.
Tax Saving Mutual Fund – Tax saving mutual fund
Equity-linked savings scheme (ELSS) is a category of mutual funds created by the government to further promote long-term investments in equities. An ELSS fund manager invests in a diversified portfolio that invests primarily in equities and equity-related instruments to generate high risk and has the potential to deliver high returns. ELSS mutual funds provide tax benefits under Section 80C of the Income Tax Act. According to this section, one can avail tax exemption of up to 1,50,000 by investing in ELSS fund. Of all the tax saving schemes, this is the only one that experiences net equity. Although ELSS also has some risk, with minimal duration, it has emerged as the most effective tax saving vehicle today.
What are the ways of investing in mutual funds? – Ways to invest in a mutual fund
Mutual fund schemes provide a number of easy, smart and convenient options or ways to invest to meet the special needs of investors. Lump Sum and Systematic Investment Plan systematic investment plan (SIP). Is the most famous.
1. Lamp Sum – Lump sum : In lump sum, a large investment is made by an investor in any mutual fund plan at one time. But an ideal method to invest in them can surprise your investment in a financial year. It also helps in averaging the cost of your purchase and defeating the volatility. Apart from this, it also brings financial discipline into your life.
2.SIP : SIP is a plan of a mutual fund that has the option to invest a fixed amount on a regular basis, meaning that the predefined investment happens at regular intervals. This regular saving scheme is similar to a recurring deposit. Investment in SIP is done regularly at a fixed interval, either weekly or monthly or quarterly. Here you will divide your lump sum plan into 12 equal parts or if you are planning to invest ₹ 1,20,000 in March, then you will invest ₹ 10,000 per month in SIP. Therefore, to protect yourself from stress, you should always opt for SIP to invest in mutual funds, especially for equity oriented funds. SIP funds are the best
What should you look for before investing in a mutual fund? – Things to know before investing in a mutual fund
Here are 15 basic parameters that you should always check before choosing or comparing mutual fund plans.
|1||Rating||Ratings are determined on the basis of several factors. Assessments are the rating given to a product after a very careful evaluation or evaluation. This is the first step in choosing a mutual fund plan. Top ratings are agencies that rate mutual funds issued by companies.|
|2||NAV||Total market value (after taking all expenses related to the fund) of all shares in the NAV or Net Asset Value portfolio divided by the number of units available. Mutual funds have NAV loss and gain fundamentals. Whenever the fund’s profit increases, the net asset value increases without any change in the units, thus determining whether there is any return on the investment.|
|3||Expense ratio||The expense ratio can be defined as: Total operating expense is obtained by dividing the total value of assets under management (AMU).AUM is the total market value of the property that manages the investment or financial institution on behalf of the company or firm.|
|4||Entry load||When an investor invests in a mutual fund, the entry load is charged. This is the percentage added to the NAV at the time of investment.|
|5||Exit load||The exit load is charged on the date of redemption, and its value depends on fund to fund. Money deducted as sales charge, exit and entry load is added directly to the AMC and not to the mutual fund.|
|6||AMC||This is the short form of an assets management company – a company that runs a mutual fund. HDFC mutual funds, for example, are ICICI Prudential mutual funds. The list of AMCs is done here. Top AMCs have good and professional fund managers.|
|7||AUM||Its short form is assets under management mutual fund plan for total fund investment.|
|8||Benchmark||You can compare your returns. Special benchmarks are SENSEX and NIFTY. But again, depending on the fund you choose there are many.|
|9||Fund manager||A fund manager is a person who has even cut where to invest money in mutual funds. The performance of a mutual fund depends largely on its fund manager.|
|10||Holdings||Holdings are the contents that help mutual funds on the investment portfolio. These are the names of companies whose shares or bonds are bought.|
|11||Launch date||The launch date is the date on which the mutual fund is launched through a new fund offer. Or old fund is better, you can decide about its performance.|
|12||Lock in period||This is the time period in which the investment is made for a time period from which the previously invested money cannot be withdrawn. Tax Saving Mutual Fund (ELSS) has a lock-in of 3 years.|
|13||Return||Return investment results in loss or profit. This basically involves a change from value / principal amount. In mutual funds, we usually check for 1 y, 3 y and 5 y returns.|
|14||Risk||Risk usually means uncertainty in investment. It is a deviation from the standard or expected value. Each mutual fund rates against the associated risk based on its asset allocation.|
|15||SIP||It is the minimum amount to invest (SIP) in a mutual fund every month. This amount is decided by AMC|
What is the best time to withdraw your money from mutual funds? – When should you redeem your money from a mutual fund?
Here is a table detailing the returns received from many types of mutual funds.
|Fund Category||Ideal Investment Tenure||Expected returns|
|ELSS||5 years and above (3 years is mandatory)||15-20%|
|Large cap fund||4 years and more||12-18%|
|Mid cap fund||6 years and more||15-20%|
|Small Cap Fund||7 years and more||15-20%|
|Multi cap fund||5 years and more||15-20%|
|Sector fund||Variable (different from the region selected for investment)||Variable|
|Index fund||Depending on which index the fund belongs to||Variable|
|Liquid fund||A few days – a few weeks||7-9%|
|Ultra short term funds||6 months – 1 year||6-9%|
|Short term funds||1-3 years||5-9%|
|Monthly income plan||Variable *||7-10%|
|Gilt fund||1+ years||8-10%|
|Income fund||1-3 years||8-10%|
|Debt oriented hybrid fund||2-3 years||8-12%|
|Equity Oriented Hybrid Fund||2-3 years||10-15%|
* The returns written above are based on the past performance of the mutual fund and will not follow the same trend in future.
How can I make my first investment? – How should I start my first investment?
There are many types of mutual fund schemes for you to choose from. There are many ways in which one can invest. One can invest in online or offline or direct and regular schemes.
1. Through online portal – Online mediums
There are many types of online portals from where you can invest in various mutual fund plans in AMCs. Most of the portals have tied up with many banks to facilitate easy fund transfer at the time of investment. Some companies like GROWW provide online portals to invest directly in the fund without any charges. It is 100% free and paperless medium. This is the best and easiest way to invest in mutual funds.
2. Through Intermediate – Through an intermediary
A large variety of intermediaries is available. These include most banks, national or regional distribution companies, some stock brokers (including online brokers) and a large number of individual and small financial advisory companies. All intermediaries have to register with the Association of Mutual Funds (AMFI) in India, which also maintains a searchable online directory.
3. Through IAFS – Through IAFs
IFAs are an independent financial advisor. Who are individuals who act as agents to facilitate investment in mutual funds.They help you in filling the application form and also submit the AMC.
4. Through Your Bank – Through the bank
Banks also act as intermediaries (intermediaries) who give funds to many AMCs for their schemes. You can invest directly in your bank branch in the fund plan in which you want to invest.
5. Through Demat and online trading accounts – Through a demat account
If you have a demat account, you can buy and sell mutual fund schemes through these accounts.
The knowledge highlighted in this article is to explain the basic concepts for investment in mutual funds. It does not, in any way, cover every aspect of investment in a mutual fund, but will definitely give you a good start to your investment journey.
Investing in online mutual funds is very easy, it is done without paper work.