Mutual Fund

Mutual Fund is a trust that pools money from investors having similar financial goals, and invests the money as per guidelines, to attain the stipulated objective.

Diversified and Affordable

We are empanelled with all leading fund houses and also has a dedicated mutual fund desk which, along with our research team, ensures your growth of your investments.

What are Mutual Funds?

Mutual funds are among the most popular investment tools among investors. This is because they are easy to understand and easy to trade in. In fact, even if you have never invested in mutual funds before – you would learn everything about mutual funds investment by the time you finish reading this piece. For beginners, mutual funds are the best way to invest in market-based securities.

The accessibility and variety available within mutual funds make it an important investment tool for experienced investors as well. Mutual funds allow an investor to tailor their portfolios towards various investing and saving objectives. They are an ideal tool when building corpus for a large expense.







Benefits of Mutual Funds

  • Reduces Risk: Diversify your portfolio by investing in various securities and thus minimizing the risk.
  • Liquidity: Can be bought and sold on any dealing day at the day's prevailing price no matter how large the number of units you hold.
  • Affordability: Allows even a small investor to take the benefit of their investment strategy.
  • Transparency: The investor gets regular information on the value of his investment along with the fund manager's investment strategy and outlook.

What does mutual funds mean?


Let us look at the formal definition of a mutual fund. Securities and Exchange Board of India (SEBI) defines mutual funds as “a mechanism for pooling money by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document”.

The underlying securities that a mutual fund invests in can be stocks, bonds, money market instruments, other financial instruments or a combination thereof. The combination of the underlying securities invested in, called holdings, makes up the portfolio of a mutual fund. The risk and return on investment varies, based on which type of securities make up the portfolio. For example, mutual funds with investment in equity shares typically carry a higher risk than mutual funds that invest solely in debt instruments. Similarly, expected equity mutual fund returns are higher than debt mutual fund returns. More about various types of mutual funds is also discussed later.

It is important to remember that an investor does not own shares in any of the holdings; but owns a representation of those holdings – called units. For example, if one holds units of a mutual fund that has Reliance India Limited (RIL) in its portfolio – one still does not directly own any share of the underlying RIL stock.

Mutual funds investments are considered diversified, as a fund invests in securities across a wide variety of industries and sectors. This allows investors to enjoy the benefit of diversification without having to individually own multiple securities. Top mutual fund houses offer schemes that diversify both within a type of security and across different types of securities. Remember that your investment portfolio must be made up of different investment tools.

Mutual funds issue units to the investors according to the quantum of investment made. This ensures that profit or loss from the underlying securities is shared among the investors – also known as unitholders – in proportion to their individual investments.

A mutual fund is required to register with SEBI before they can offer units for sale to investors at large.
Before you learn to invest in mutual funds, let us find out how these work.


How mutual funds work?


Mutual funds in India are set up as trusts. These trusts have sponsor, trustee, Asset Management Company (AMC) and custodian. A sponsor (or sponsors) set up the trust and is equivalent to a promoter in a company. The trustees hold the mutual fund’s properties on behalf of the unitholders. AMC manages all the investments made by the fund. They choose the securities to invest in and the quantum of investment to be made. AMC must be approved by SEBI to manage a mutual fund. Custodians hold the securities that the mutual fund invests in. Custodians must register with SEBI before they can take custody of the underlying securities of a mutual fund scheme. The trustees are required to monitor the performance of mutual fund investments and ensure that the fund complies with all relevant SEBI regulations.

Further, SEBI mandates that at least two-thirds of the directors of trustee company or board of trustees are independent – i.e. have no relationship with the sponsors of the mutual fund. It also mandates that 50% of the directors of the AMC are independent.

Mutual funds pool money from the unitholders and buy other securities using this money. Therefore, the value of the mutual fund depends on how the underlying securities perform. When you buy a unit of a mutual fund, you are buying a part of this portfolio’s value. The best mutual funds ensure that their portfolio is well-diversified to lessen the impact of any market shocks.


Types of mutual funds

There are many different types of mutual funds to choose from and invest in, with each promising to give better returns than the other. And if you are confused about which investments to choose from, you are not alone. However, you can determine which fund will work for you depending on the risk appetite, the immediate or long-term needs, and the expected returns. Other factors like tax exemptions, cost, and flexibility also play a key role.

Depending on the investment avenue, the funds are divided into 4 different categories. These comprise Equity Funds, Debt Funds, Balanced/Hybrid Funds and Commodity Funds

(A) Equity Mutual funds

Equity mutual funds invest all of the pooled money in equity shares of companies. Here, all of the money gathered from the investors in invested in different shares. Depending on the price rise or fall, the returns are distributed proportionately among the people. Funds of this type are classified as high risk because of the volatility associated with the stock markets. The best time to invest in equity funds is when you have surplus cash and are looking for good returns over the long haul.
Equity funds are further classified into different types depending on the market capitalization of the company the fund is investing in.

What is market capitalization?

It is the market value of the company’s outstanding shares. Market capitalization is important because it helps ordinary investors understand the size of a company. Understanding size is important to determine risk associated with the company or the stability associated with it. Based on the market capitalization, there are different types of equity funds. They are large cap, mid cap, small cap, and multi cap equity funds.; they are large cap, mid cap, small cap, and multi cap equity funds.

Should-You-Be-Investing-in-Equity-MF-SIPs(L)

  • (A1) Large cap funds:

    Large cap funds are equity fund that invest a large portion of their corpus in companies with large market capitalization. Large cap funds are generally assumed to be reliable, strong and stable funds since large companies are assumed to be strong, stable, and reliable. Hence, if you are looking to get a good return without much risk, large cap mutual funds could be a good choice.

  • (A2) Small and Midcap Funds:

    These equity funds invest in a mix of midcap and small cap market capitalization stocks. Small cap funds and mid cap funds are exposed to high performing stocks, but this also means they are positioned on a high-risk return trade off place compared to a large cap fund. Hence, if you have additional funds or are young and have no financial responsibilities, then small cap and mid cap mutual funds will augur well for you.

  • (A3) Multi-cap funds:

    Multi-cap mutual funds are a type of equities that invest in a diverse number of companies irrespective of the market capitalization. They invest in a mix of large cap funds, mid cap and small cap funds. Multi-cap funds are good for those who have large amount of funds, want to achieve a certain financial goal over 5 to 7 years, and can take moderate risk.

  • (A4) ELSS Funds:

    ELSS funds are a unique category within equities. ELSS funds help you save tax under section 80C of the Indian Income tax Act. Hence, they are also known as tax saving mutual funds. These are closed ended funds with a lock in period of 3 years. An individual can save up to 1.5 lakhs in tax because of the ELSS mutual funds. If you want a regular income from the fund, you can opt for the dividend pay-out option. People who are risk averse and looking for tax benefits can avail of ELSS funds. One can also find how much return they will get from an ELSS fund at the end of 3 years using an ELSS calculator.

(B) Debt funds

Debt funds take the investors’ money and invest in different debentures, government bonds, and other fixed income assets. These are considered safe instruments. Hence, if you are looking for safe avenues for parking your money which can provide regular income, debt mutual funds are a good idea.
The different types of debt funds are: Income Funds, Liquid Funds, Dynamic Funds, Gilt Funds and Fixed Maturity Plans.

  • (B1) Income funds:

    Income funds are a type of debt funds that invest in bonds, certificate of deposits and also in securities among others. This fund is preferred by those who want stability for their portfolio at the same time are looking for better returns than fixed deposits over a 2 or a 3-year period.

  • (B2) Liquid funds:

    Liquid mutual funds are ultra-short-term debt funds. That invest in debt instruments and money markets for a tenure of 91 days. They invest in government bonds, treasury bills, and call money. These funds are perfect for anyone who wants to immediately park their funds. Liquid fund returns are pegged at 6.94% which may be lower than other debt fund investments.

  • (B3) Dynamic Funds:

    Dynamic equity funds are similar to hybrid funds that they have a mix of equity and debt. However, unlike a balanced fund the composition of dynamic funds can vary significantly. It can be a 100% equity fund investment or even 100% debt fund investment.

  • (B4) Gilt Funds:

    Gilt funds or Gilt securities funds invest in government securities for medium to long term. They invest in high end government securities and mature in 10 to 15 years. These gilt funds are perfect for those who are risk averse.

  • (B5) Gilt Edged securities:

    Gilt ETFs or Gilt exchange traded funds allow investors to participate in the government bond market at a low cost. In India, one can buy exchange traded funds (ETFs) with stocks or gold as underlying instruments.

  • (B6) Fixed maturity plans:

    Fixed maturity plans are closed ended debt funds that mature after a certain time period. These funds invest in high rated securities and corporate bonds. Since they are closed ended funds, the investment can be made only during the NFO as a lump sum. They are better avenues for investment as compared to a fixed deposit since there are many tax benefits.

(C) Hybrid funds

Hybrid mutual funds invest in both equities as well as debt instruments. This is done to achieve diversification and assured returns. A hybrid fund would work towards wealth appreciation over a longer term and earn income over the short run through a balanced portfolio. Depending on the investment objective of the hybrid fund, the fund manager may invest funds in suitable proportions across equity and debt. Hybrid funds are safer than pure equity funds and deliver better returns that debt funds. As it is a blend of equity and debt, the former enables an investor to create wealth when the markets are doing well and the latter offers stability during downturns.
According to their asset allocation, hybrid funds can be further categorised into the following: Equity Oriented Funds, Debt Oriented Funds, Arbitrage Funds.

  • (C1) Equity oriented funds:

    A fund manager managing an equity oriented mutual funds would be investing at least 65% of its assets in equity and rest in debt instruments or money market instruments. Equity component would include shares of companies across industries. They can also be called aggressive hybrid funds. They are suitable for investors who have surplus money and who can afford to take risks; or investors with a high-risk appetite.

  • (C2) Debt oriented funds:

    A debt oriented fund would be investing atleast 60% of its assets in debt instruments and the remaining in equities. It is a mirror image of equity oriented balanced funds. Certain part of the fund’s assets would also be invested in cash or cash equivalents to ensure liquidity.

  • (C3) Arbitrage funds:

    Arbitrage funds are a type of mutual funds that leverages on the price differences in the capital markets and the futures market. An arbitrage mutual fund purchases stock in the cash market and simultaneously sells that interest in the futures market. This is a good choice for investors who want to steer clear of the risk factor associated with the markets.

(D) Commodity Funds

There are commodity funds – which are of the following types: Gold funds and Gold ETFs.
invest in gold online

  • (D1) Gold Funds:

    A gold fund is an exchange traded fund which invests in gold exchange traded fund. The primary aim of the fund is to create wealth by tapping the potential of gold as a commodity. The best of the gold fund is that you can take advantage of the rising gold prices without holding the commodity in physical form. You also get to avail of professional management. Gold funds are suitable for those who want an exposure to the gold market.

  • (D2) Gold SGB:

    Gold Sovereign Bonds are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. These are government securities which are denominated in grams of gold. Instead of holding gold in physical form, investors can pay the issue price in cash and redeem the bonds in cash on maturity. Risks and costs of storing gold are eliminated. Investing in Gold SGB also resolves other issues such as making charges and purity which arise in the case of gold jewellery.

  • (D3) Gold ETFs:

    A Gold ETF is an exchange-traded fund that can be bought and sold on stock exchanges thus saving you the trouble of keeping physical gold.
    The fund itself holds gold derivative contracts that are backed by gold. So, if you invest in a gold ETF, you won't actually own any gold. Even when you redeem a gold ETF, you do not receive the precious metal in any form.

Now that we have covered the classification of mutual funds according to categories, there are classifications based on structure as well. These classifications apply for high risk funds as well as low risk funds. Structural classifications are useful when determining the number of units that can be bought and sold, the periods and intervals for buying and selling, the flexibility associated with the fund, etc.

  • Open ended funds:

    These funds can be bought or sold throughout the year. There is also no restriction on the number of units that can be purchased. An investor can sell or purchase funds at the prevailing NAV (net asset value). Hence, the unit capital continually changes with new entries and exits. Conversely, an open-ended fund may decide to stop taking new investors if they do not want to. These funds are useful for those looking for liquidity in the funds. These are also safer than closed ended funds since their track record is there for everyone to see. Investing in an open-ended fund can be done via SIP mode.

  • Closed ended funds:

    These are those types of mutual funds which can be purchased during the initial offer period. Units will be sold or reinvested only at a specific period. Hence, the person purchasing or selling will have to do at the NAV during the specific period.

  • Interval funds:

    These funds are similar to a deposit. These funds are open for purchase and repurchase at specific intervals during the fund’s tenure. These funds can be closed for trading for as long as 2 years.

Advantages and Disadvantages of Mutual Funds

Advantages of MFs

There are numerous advantages of mutual funds. Mutual funds can best be described as coming of age investment methods. Mutual funds provide a whole lot of advantages. Some advantages are - simplicity, professional management, reduced cost and diversification. Let us take a look at some of the advantages:

Disadvantages of MFs

There are a few disadvantages of mutual funds despite the myriad benefits it offers.

  • Higher returns:

    Over a longer period of time, various types of mutual funds have offered higher returns as compared to several other financial instruments. This has enabled investors to achieve their financial goals.

  • Mutual funds are simple to understand:

    Despite the apparent complexity of mutual funds, they are actually simple to understand. Mutual funds pool together money from different investors and allocate that money to different stocks, bonds, government and corporate securities, and other investment avenues.

  • Mutual Funds offer liquidity:

    When you invest in a mutual fund, you can easily withdraw money as and when you want, unless it is a closed ended fund. However, if it is an open-ended fund, you can invest and withdraw at any point.

  • Cost to manage the mutual fund:

    There is a cost to manage the fund. There is a pay-out that has to be borne by the investors so that the fund manager, branch officers and other employees of the fund can be employed. Some funds charge higher than others.

  • Accessibility:

    Mutual Funds Are Easy to Buy. You can buy Mutual Funds online. There are multiple entities selling mutual funds ranging from asset management companies (companies that run and manage mutual funds), brokerage houses, banks, ,online payment aggregators and agents. Some companies even offer no load mutual funds. So even if you are an absolute beginner, there is no reason why you should not start.

  • Diversification:

    Mutual funds follow the rule of “don’t put all your eggs in one basket”. One can invest in diverse mutual funds depending on their needs, risk appetite, liquidity, and various other parameters. You can also diversify into specific sectors, themes, etc. The best part is all this can be done within one mutual fund. However, it is more prudent to invest in multiple mutual funds.

  • Professional management:

    The greatest benefit of mutual funds is that it is professionally managed. People who have the know-how of the what, why, what not and the how’s of mutual funds, are taking care of your money. First, you can be sure your money is in safe hands. Secondly, it saves you countless hours in research, energy and money.

  • Lock in periods:

    Lock in periods are part and parcel of many closed ended funds. Hence, it is not possible to take out your money whenever you want if you have invested in certain kinds of funds. Liquidity is an issue with certain mutual fund investments.

How to invest in mutual funds

A prospective investor would have to consider various factors before planning to invest in a mutual fund online. Here are some of them:

Our Offerings

Wide_range_293x164

Wide Range

With us, you can choose and invest from over 40,000 Mutual Funds schemes.

paperless_293x164

Invest with ease

Invest in mutual funds with us in a paperless manner using our online platforms with ease.