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MUTUAL FUNDS





It is a kind of trust which gathers money from people having similar financial goals. They further invest the collected money in the asset classes. Investment is done with the help of professional expertise whose job is to maximise your returns with complete transparency. For consumer protection, the complete process is monitored and regulated by SEBI.

EQUITY MUTUAL FUNDS

  • Equity mutual funds are those Mutual Funds that invest in listed shares.
  • Since investment is made mainly in stocks by mutual fund companies thus they are riskier but at the same time they may yield more rate of return as compared to other saving instruments
  • Equity mutual funds can be categorised on the basis of company size (Large-cap, small-cap, medium-cap) or sector wise (Real estate, metals, pharma companies, bankingetc.)
  • By investing in Equity mutual funds you become indirect investor in the stock market which also contributes to the growth of Indian Economy
  • This instrument is also liquid in nature i.e. amount invested can be withdrawn as per the current market value at any time
  • Equity mutual fund have 1% exit load in case withdrawal is made before 1 year
  • Equity Mutual Funds normally charge around 2% as fund management fee. But this percentage varies fund to fund

WHY INVEST IN EQUITY MUTUAL FUNDS?

  • Diversification

Equity Mutual funds are diversified in nature as the money invested in the company is further invested in different sectors. By this diversification, if some of the sectors underperform or perform negatively then it does not affect the whole portfolio, as other sector performance will balance out the whole portfolio. By investing as less as INR 5000 (lump sum) and INR 500 (SIP) one can have an allocation in different stocks and if you go directly to the same market then it is difficult to buy more than 3-4 stocks for the individual.

  • Professional Advice

By investing in Equity Mutual Funds you are indirectly investing on the advice of professionals. These professionals have a team that continuously analyses the prospect and performance of the companies, in order to meet the scheme objectives. They also help in earning higher returns as analysing the performance is a continuous process.

  • Affordability

Generally, small investors are not able to invest inBlue chip stocks. But, securities are bought and sold in large volume by mutual fund companies (in which money is invested by small investors); which enables small investors to take advantage of getting benefit from small investment as well. This investment can be as small as INR 500 monthly SIP.

  • Transparency

Investing in Equity Mutual Funds provides transparency as the investor is able to compare between the performances of different funds. This comparison is easy and transparent because a review of performance is done by various rating agencies and publications.

  • Regulated

Investing in Equity Mutual funds is completely regulated. It is mandatory for all Mutual Fund companies to get registered with SEBI (Securities Exchange Board of India). And SEBI regulates all operations of these companies.

  • Liquidity

Equity Mutual funds (except the funds that have a locking period) are liquid in nature as they allow you to redeem/withdraw the amount invested whenever you wish. Also, the redemption process is streamlined, efficient and quick.

In case a person wants to book the profit then he can keep a watch on Net Asset Value. In equity fund, it takes 3 working days to get the amount credited to your bank account.

  • Tax Benefit

Any gain made through equity mutual fund which has completed 1 year will be tax-free in hand. Also, it provides taxation benefit of up to INR 1.5 Lac on equity-linked saving schemes (ELSS) u/s 80C of Income Tax Act 1961.

WHAT ARE THE TYPES OF EQUITY MUTUAL FUND?

Large Cap Equity Funds
  • Large Cap Equity Funds are those funds which invest in companies having large market capitalization like Infosys, Reliance etc.
  • These fund type gives you sustainable returns over a period of time and is considered safer, because these are renowned companies and are able to handle the downfall in market also there are minimal chances of going bankrupt for these companies
  • Rate of return is stable but not very high as these companies are well established and chances of further growth are less
  • These funds are also known as “Blue Chip funds” and “Large-Cap Funds”.




Mid-Cap Equity Funds
  • Mid-Cap Equity Funds are those funds which invest a major portion of their investment in Mid-size companies that are in development phase such as logistics, media and consumer retail etc.
  • These funds can earn you a high rate of return during the bull market phase. As these companies have the potential of growth. But, rate of return is more than Large Cap funds but less than small-cap funds
  • Risk involved in these kinds of fund is larger than large cap but less than small-cap funds
  • It is advisable to calculate your risk appetite and decide the percentage you want to allocate in these funds
Small cap funds
  • Small-Cap Equity Funds are those funds which invest major portion of their investment in small-size companies
  • These funds can earn you a very high rate of return during the bull market phase. As these companies have huge growth potential
  • The risk involved in these kinds of the fund is also very high. As these companies are not so established to handle the volatility of market
  • It is advisable only for people with high-risk appetite and having long-term horizon
Multi-Cap Equity Funds
  • Money is invested across different sectors irrespective of their market capitalization. Thus, making them less risky as compared to other equity funds due to its diversification
  • Fund managers have complete liberty to invest wherever they want to depend on liquidity and market conditions and they may invest in equity and debt funds both
  • These funds earn more rate of return as they have the option to explore different investment opportunities
Sectorial fund
  • In Sectorial Fund, money is invested in a particular sector example real estate, pharmacy, banking, IT etc.
  • Fund manager does not have the freedom to invest in different sectors thus the fund performance is almost entirely dependent on one sector making it highly risky
  • These funds are suitable for those investors who have in-depth knowledge of that sector as exit timing is quite crucial for these funds
Tax savings fund
  • Equity Linked Saving Scheme (ELSS)
  • These funds save tax under section 80 C up to INR 1.5 Lac of deduction
  • This is the most efficient tax saving tool available in market
  • As compared to other tax saving instruments these funds have only 3-year lock-in.
  • Returns under these funds are also best in market although it has a risk in short term period but for long term investor this is the best opportunity
  • Rajiv Gandhi Equity Saving Scheme (RGESS)
  • The aim of this tax saving scheme is to encourage small investor to participate in equity market
  • This scheme has a Lock-in of 3 years
  • Maximum up to INR 50000 can be invested in the financial year
  • The eligibility to avail tax benefit under Section 80CCG of Income Tax Act is:
  • Investors earning should be less than INR 12Lac per annum
  • Investor should be first time investor in Mutual Fund
  • Tax can be exempted of 50% of money invested or INR 25000 whichever is less

Index Fund

These funds are for those investors who just want to invest in an index of a particular sector or Sensex where there is no professional advice needed. Fund manager invests only in those companies which are exactly in the Index.

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One comment

  1. Very Beneficial content!!!! Many thanks for sharing these practical information with us!. This particular post is amongst the finest articles I came across up to now.

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