Did you know about the different types of mutual funds that we can invest in?
According to the AMFI (Association of Mutual Funds in India), the Indian mutual fund industry is estimated to be ₹37.75 Trillion (₹ 37.75 Lakh Crore) as of July 31, 2022.
To be a part of this growing mutual fund industry you need to decide your goals and invest accordingly. As an investor, understanding the different types of mutual funds is crucial because it will enable you to build a portfolio that matches your financial objectives.
A mutual fund is a type of investment strategy that pools money from investors and distributes it into various assets. This money is often invested in financial assets like bonds, certificates of deposit, shares, and money-market products.
Asset classes may be broadly divided into equity, hybrid, and money market funds. You can make short, medium, or long-term investments in mutual fund schemes.
When you invest in a mutual fund scheme, you combine your funds with those of other investors. A fund manager who invests in financial assets like stocks, bonds, etc., manages the money for you and other investors who have pooled the money together. Here is a flowchart showing how mutual funds operate:
Example:
Consider the introduction of a mutual fund programme by XYZ Mutual Fund. Consider the XYZ Top 25 Fund. Let’s say the plan receives Rs.1 crore from 100 investors. Each investor invests Rs. 50,000. The fund agency distributes the units for Rs. 5 per NAV. As a result, 20,000 units are given to each investor. Consequently, the fund house issues and distributes 20 lakh units in total.
The XYZ Top 25 Fund aims to invest in 25 different stocks. The fund management researches and selects the best stocks to fulfil the target. According to the fund manager, the portfolio will generate considerable returns if the purchased stocks meet the requirements.
Investors generally use mutual fund schemes because they provide the following benefits:
A specialist actively manages mutual fund investment plans, continuously keeping an eye on the portfolio. Additionally, the manager has more time than an individual investor to choose assets.
The money is invested in various stocks in a single mutual fund. For instance, a typical equity fund might invest in the stocks of 35 to 60 different firms. Individual investments in these businesses would require far more significant sums of money, but you can hold all of these firms with a 500 investment via a mutual fund scheme. The main advantage of investing in mutual funds is that they reduce risk when the market declines.
Among the few genuinely inexpensive investing alternatives, mutual funds are most likely one. Saving money is now simpler than ever. Unlike gold or real estate, where one must pay hundreds or even millions of dollars upfront, you can start with a short amount.
High liquidity is a feature of mutual funds. Generally speaking, if necessary, you can sell your mutual funds considerably quickly.
There are different types of mutual funds, which have unique characteristics, dangers, and benefits.
Short-term debt instruments that make up the money market fund are secure, risk-free investments, mostly Treasury bills. While investment is guaranteed, investors will not see significant profits. The average return is marginally higher than the interest earned in a standard checking or savings account and marginally lower than the ordinary Certificate of Deposit (CD) rate.
Bond funds concentrate on assets with a fixed rate of return, including corporate or government bonds or other debt securities. Interest revenue generated by the fund portfolio is distributed to the owners. Bonds come in various forms and can differ significantly depending on where they are invested. Additionally, all bond funds are sensitive to interest rate risks.
This fund primarily invests in stocks or equities, as the name suggests. There are several subdivisions within this category for the types of mutual funds in India.
Source: Kl.Aggrawal
Bonds, equities, and other assets are mixed in target date funds. The composition gradually changes over time following the fund’s strategy. Sometimes referred to as ‘lifecycle funds’, these are created for those with specific pension dates.
Debt funds, known as “gilt funds”, typically invest in government assets. These funds are not at risk of not receiving interest or principal payments, but they are subject to changes in interest rates because government borrowing is frequently longer-term.
In terms of mutual fund analysis and search, Jupiter Money is user-friendly. You can start your first purchase after completing the digital KYC procedure.
You may evaluate your wealth building based on selected targets with an integrated SIP calculator, mutual fund calculator, CAGR calculator and so on.
CAGR (Compound Annual Growth Rate) estimates the typical annual growth of your holdings over a specific time frame. Jupiter Money Mutual Fund Calculator calculates the CAGR to analyze the types of mutual funds. It displays the average annual rate of return on your assets. As it accurately depicts an investment’s growth (or fall) over time, CAGR is a valuable tool for investors.
Profits are expected to be reinvested after each year of the timeframe for calculating CAGR since it is not a precise return but rather a typical figure. An investment often cannot increase at the same rate year after year. Despite this, many people compare various assets using the Jupiter Money calculator.
Mathematical Formula of CAGR
The investment’s future, present, and years of investment are denoted by the three letters V(final), V(begin), and t, respectively.
Let’s look at a hypothetical scenario to comprehend the computation better. Consider your 2014 investment of Rs. 50,000 in a mutual fund. In 2022, the investment will be worth Rs.1,50,000. The calculation results in the following CAGR for this mutual fund investment:
CAGR = {( 150000/50000)^(⅛)} – 1
= 0.147
IN PERCENT VALUE = 14.7%
Jupiter Money’s Mutual Fund calculator helps you choose the right mutual fund scheme. The advantages of utilizing this calculator are as follows:
Jupiter’s calculator is simple to use and quickly estimates the profits accumulated from the tiny monthly or one-time deposits. You can therefore strategize your investments to achieve long-term financial objectives.
The mutual fund calculator has an easy interface where you can provide very few details to generate the estimated output. This saves you time as it calculates your returns while remaining accessible.
Mutual funds are a great financial tool for growth. If you’re looking for expert management, consider the types of mutual fund schemes. Investors can consistently save money using these; you may now begin investing without any uncertainty. The operation of the mutual fund scheme and the types of mutual funds are now well understood. Don’t wait to start your investing journey with Jupiter Money.
The procedures for investing in a mutual fund by using an online investing platform are:
2. Which kind of mutual fund investment plan is most suitable for newcomers?
Large-cap funds are suitable for beginners to begin their mutual fund investing adventure. They buy large-cap shares and are less volatile than mid-cap or small-cap funds.
India’s most reputed mutual funds include the Canara Robeco Bluechip Equity Fund, Mirae Asset Tax Saver Fund, and the ICICI Prudential Liquid Fund, to name a few.
Professionals use the following parameters to analyze a mutual fund portfolio:
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