Mutual funds have started to gain traction in India, and more and more people are now willing to invest. Be it on social media, Television, radio, or anywhere we go we hear about investing in mutual funds.
Recently, the Prime Minister, Shri Narendra Modi, also acknowledged the growth of the mutual fund schemes by stating a “250% growth in mutual fund AUM (assets under management) in the last 8 years.”
If you are considering whether or not to opt for mutual funds, continue reading. This article discusses mutual fund basics, including how it works and its importance, to help you make an informed choice.
Also, in case you are worried about the performance of your mutual fund portfolio and how genuine they are, try our Portfolio Analyser tool to find the answers.
A mutual fund is like a train journey.
Perplexed?
Allow us to explain.
The train is the mutual fund scheme, and the travel route refers to the mutual fund’s objectives. The total number of passengers is the asset under management (AUM), while the driver is the mutual fund manager.
It means that a mutual fund’s returns may sometimes not be significant and come to a halt. Still, it will ultimately help you achieve your financial goals. That is why mutual funds are essential; they let people invest in assets and fulfill their dreams, irrespective of their financial capabilities.
If we look at numbers, most mutual fund types have significantly outperformed other low-risk investments, such as recurring and fixed deposits, in the last decade. In addition, they have provided retail investors (non-professional investors) access to professionally managed portfolios, helping them beat inflation without taking undue risks.
Some mutual fund types even offer tax benefits to their investors. For example, ELSS or equity-linked savings schemes are tax-saving mutual fund schemes that offer tax benefits while investing most of their corpus into equity.
Mutual funds are financial vehicles that invest in specified securities, bonds, gold, and other assets. They create a pool of assets and invite interested investors to invest with them.
Professional fund managers manage these funds; they are responsible for managing the asset allocation to ensure the smooth working of the fund. Every mutual fund’s portfolio is designed to match the investment objectives stated in its prospectus.
For example, a Flexi-cap fund is a mutual fund type that is flexible with investments and invests in all the market caps. The fund manager dynamically invests the capital in the best interest of the investors who wish to maximize returns without bearing the highest risk quotient.
Similarly, a gold mutual fund refers to a fund that directly or indirectly invests in gold reserves. These can be in the form of gold bonds, physical gold, or mining company stocks, and they look to emulate the real-world returns generated by gold.
The working of a mutual fund is pretty straightforward. It invites potential investors to invest money in it. The corpus is then used to allocate funds to different asset types per the goals mentioned in the prospectus.
The fund manager is responsible for managing the investments made by the fund. These funds invest in an umbrella of assets, they offer instant diversification.
Mutual funds can be passive or actively managed depending on the investment objectives. While ETFs (exchange-traded funds) and index funds are examples of passive mutual funds, Flexi-cap and Small Cap funds belong to the active type.
Passive mutual funds look to match the performance of a specific asset or an index. For this, a gold fund would invest in gold-related investments to achieve the same returns for their customers if they had invested in gold.
In contrast, actively managed mutual funds are more aggressive and look to beat the market or an index. For example, a small-cap fund would look to topple the returns generated by the Nifty Small Cap index most of the time by cleverly investing in different small-cap stocks.
Irrespective of the type of investor you are, you would benefit from investing in mutual funds. Here is why.
Experts recommend that you invest in different asset types to manage and minimize risk – it is always wise not to put all your eggs in the same basket. A well-diversified portfolio stands a better chance of mitigating market volatility.
With mutual funds investing in a basket of unrelated assets, you stand to gain from diversification by investing in mutual funds. It lets you grow your corpus without worrying about steep downsides.
Most retail investors do not have expertise in investment. They do not understand how movement happens in different asset types, which puts them at risk of losing their capital if they invest independently.
On the other hand, a group of experts manages mutual fund investments. Experts usually can predict when to enter and exit an asset better than most laypeople, giving you higher chances of safeguarding your capital.
Bonds, debentures, and fixed deposits have a lock-in period, which means there are restrictions on money withdrawal. But there are no such bottlenecks with mutual fund investing. You can redeem an investment in a mutual fund at your convenience, provided you accept the exit load that certain mutual funds have.
When you choose mutual funds, you know how the fund manager is utilizing your money. Risky chit funds and other investment modes do not disclose how they use your money. Unlike these investment avenues, you get periodic updates with MFs, making them transparent and reliable.
Further, the Securities and Exchange Board of India (SEBI) regulates the functioning of MFs in India.
Are you a young investor who wants to earn higher returns while bearing higher risks?
Equity mutual funds are built for investors like you.
Are you a risk-averse investor who merely wants to match the index’s performance without taking significant risks?
Well, there are a lot of index funds to choose from.
Are you interested in gold but do not want to bear the additional risk of holding on to physical gold?
Then, gold funds are your best bet.
There are many mutual fund types. And irrespective of the kind of investor you are and your risk profile, you are most likely to find a category that suits your needs.
At Jupiter, we have developed the Portfolio Analyser to ensure it is no longer the case. This tool tells you how sahi are the mutual fund schemes you have invested in. It detects high-risk, underperforming funds and highlights hidden fees bogging your returns down.
Click here to generate a free report using our Portfolio Analyser tool.
Like every asset type, mutual funds carry a degree of risk. However, diversification minimizes the risks concerning the returns.
Increasingly, mutual funds in India are catching on as a lucrative investment option. People have started to recognize the advantages of investments in mutual funds and have begun to use them for their long-term financial goals.
Recent mutual fund performances have demonstrated that they are adept at fulfilling your short-term objectives without having to bear undue risks.
At Jupiter Money, we offer you direct access to the vast world of mutual funds. So, begin your investment journey with us today.
Mutual funds invest in a mix of asset types, meaning they inherit the risk attached to these asset classes. But the fund managers invest in a way that controls volatility and manages the risks efficiently.
The Securities Exchange Board of India (SEBI) oversees all mutual funds in India, including the ethical practices to be followed by all financial institutions and fund managers.
If you have a lump sum amount to invest immediately, you can put it all in a mutual fund or multiple funds of your choice. But most retail investors prefer to go the SIP way, where they get to invest a certain sum in mutual funds periodically, say monthly or quarterly.
If you ask us, investing in direct mutual funds via Jupiter is the way to go.
Yes. Most mutual funds do not come with a lock-in period, and investors are allowed to sell their units anytime they desire. Some mutual fund policies, though, have an early redemption fee clause, which means you will have to pay a certain percentage if you sell before a prescribed period.
Types based on maturity
Types based on the investment objective
SIP or Systematic Investment Plans refer to a habit of systematic and periodic investment by the investor in one or more assets. It allows investors to minimize the impact of volatility on their portfolios.
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Priyanka Rao is a content strategist for Jupiter.Money, and specializes in writing on topics related to finance, banking, budgeting, salary & wages, and other financial matters. She has a passion for creating engaging content that resonates with audiences across various digital platforms. In her free time, Priyanka enjoys traveling and reading, which allows her to gain new perspectives and inspiration for her work. With a keen eye for detail and a creative mindset, Priyanka is committed to creating content that connects well with her readers, enhancing their digital experiences.
Vivek Agarwal is a dynamic leader with deep expertise in investment platforms and wealth management. At Jupiter Money, he spearheaded the Investments vertical, building in-house solutions for direct mutual funds, digital gold, and fixed deposits, scaling the platform to over 200,000 customers. He was an early adopter of SEBI’s Execution-Only Platform (Category 1) and managed key operational, compliance, and customer service functions.
Previously, Vivek co-founded Upwardly, a robo-advisory wealth management platform offering tailored investment and insurance solutions. As Chief Investment Officer, he pioneered dynamic asset allocation, goal-based investments, and motif-based portfolios. After Upwardly's merger with Scripbox, he led the integration of independent financial advisors into Scripbox, transitioning assets under management and customer relationships seamlessly.
His strategic leadership extended to setting up corporate treasury services for startups and MSMEs, and establishing verticals in insurance and bond sales, including Sovereign Gold Bonds. Vivek’s diverse experience and strategic vision continue to shape the financial services landscape in India.
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