What are Mutual Funds?

A mutual fund is a professionally managed investment vehicle which pools in the funds received from investors into stocks, bonds, cash or a combination of these asset classes. Reliance Mutual Fund (now known as Nippon India Mutual Fund) is an example of a mutual fund.

Here are some benefits of mutual funds:

Recommended Mutual Funds: Salient features

An investor can invest in mutual funds through two ways:

Direct

This is suitable for informed investors who have already finalized the mutual fund scheme they wish to invest in. They can directly approach the branch of an Asset Management Company and initiate the process of investing in mutual funds. Such an investor would have to fill in the application form (choose SIP amount, tenure etc), submit proof of identity, proof of address and submit a cheques of the desired SIP amount. In this case, the funds would be directly debited from the investor’s bank account. Leading AMCs have also made this process online.

Through channel partners

Investors can also invest in mutual funds through an intermediary. This intermediary would be a mutual fund distributor registered with AMFI. A mutual fund distributor can be a bank, broking house or an online distributor/aggregator.

Types of Mutual Funds

Equity fund

Invests majority of its capital in shares of companies having different market capitalization. Investors should consider equity funds for achieving goals which are at least five years away. These can be categorized according to market capitalization, sectors/themes and investment style.
They primarily invest in stocks. They are suitable for investors looking for wealth creation over a period of time. They tend to be volatile over the short term.

Tax saver funds

Also known as ELSS (Equity Linked Savings Scheme). This is a mutual fund that invests in equity and equity related securities. It has a lock in of three years. Over a period, it has the capacity to offer better returns than fixed deposits or PPF.
ELSS funds (Equity Linked Saving Scheme) are emerging as a favourite among investors since they offer wealth creation opportunities as well as tax benefits. However, they have a lock-in period of three years which is quite competitive as compared to other investment vehicles.

 

Debt fund

Invests in securities which generate fixed interest such as corporate bonds, treasury bills, commercial paper, government securities and other money market instruments.
These funds invest in fixed income instruments such as government securities, bonds and treasury bills. They offer fixed interest rate and maturity date. It is suitable for passive investors looking for regular income with minimal risks.


Hybrid Fund

Is a mix of diversification of assets, which include investing in both equity and debt funds. This helps in optimizing the returns.
Hybrid funds invest in a combination of stocks and bonds. The ratio of stocks and bonds can be fixed or variable. This is suitable for investors looking for a slightly higher returns than what debt funds offer.

 

Growth fund

These funds invest a considerable proportion of funds into shares or other growth oriented sectors. They tend to be riskier but can offer high returns.


Income Fund

Are managed by fund managers who invest in a mix of bonds, securities and certificate of deposits. These are suitable for risk averse investors looking for moderate returns within 2-3 years.


Invest in mutual funds at reliancesmartmoney.com. Compare mutual funds based on their VRO rating, returns, asset allocation, top holding and stock market trends and analysis to achieve your trading and investing goals.