What is a Mutual Fund?

Mutual Fund is the most suitable option for small investors to diversify their investment, which is professionally managed at comparatively low cost. Mutual fund is an investment tool used by number of investors who share a common financial goal. The main goals of mutual fund is getting better return than savings rate and beating the benchmark indices. Mutual Fund schemes are designed to minimize risk by creating a diversified portfolio of different instruments like equity, debt, money market and/or combination of all. These mutual fund schemes provide ease of investment in various categories like equity, debt, money market etc.

    Mutual Funds - Overview

    Mutual fund is known to be one of the best investment avenues in India. Learn about what is mutual fund, how it works and benefits of mutual funds investment.

    • Types

      Mutual funds are divided into various categories based on the asset class and method of investment. SEBI has stated the parameters for multiple categories of mutual funds which are discussed below.

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    • Benefits

      MF have multiple benefits which favour the statement of AMFI 'Mutual Fund Sahi Hai.' Due to several advantages, its popularity is rapidly increasing along with the number of investors.

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    • Objectives

      The Mutual Funds are chosen to fulfil various financial goals in a convenient and efficient manner. The objectives for which mutual funds investments are most commonly chosen are described below.

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    • Methods of Investing

      SIP and lumpsum are the two methods of investing in mf. There are various advantages as well as disadvantages of one over the other.

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    • How to Choose Mutual Funds

      An investor can select the best scheme for oneself if he/she reads the various parameters of the mutual fund schemes before investing in.

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    View Best Performing Funds

    Who Can Invest in MF?

    Mutual funds investment in India provide an opportunity to every resident and non-resident Indian to invest. Though there are some restrictions on investing for the NRIs belonging to the USA and Canada by some of the asset management companies, for the residents, the only things required for investment are PAN card and a linked AADHAR card of an adult.

    The minor cannot invest on their own, but on their behalf, an adult guardian can use the details of the minor to invest.

    Methods of Investing in Mutual Funds

    Investments in mf can be made through two different modes:-

    1. Systematic Investment Plan (SIP)

    In a systematic investment plan, which is also known as SIP in mf, a small amount is invested in the selected mutual fund periodically for the selected tenure. The periodicity of the investment can be monthly, quarterly, half-yearly, or yearly. The amount so invested allots specific units to the investor's portfolio according to the NAV of the fund at the time of each investment. SIP mode of investment in mf allows the investors to reduce the risk factor as the total amount invested is added to different prices and the average of all the price is taken out which is generally positive in the longer tenure. This phenomenon is called as rupee cost averaging. The investment through SIP is continuously compounded after every investment which increases the value of the invested amount through the power of compounding.

    2. Lumpsum Investment

    It is a one-time investment in mutual funds in which the units are allotted to the investors depending on the NAV of the fund at the time of entire investment. Lumpsum speculation incurs the market risk and is generally avoided in high-risk funds. The features like rupee cost averaging, and power of compounding are not available in this mode, but it can reward with greater returns if the investment is made at the right time in the particular MF.

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    Types of Mutual Funds

    Based on asset classes, mutual funds are mainly divided into five categories

    • Equity
    • Debt
    • Hybrid
    • Solution Oriented
    • Commodity

    These are the mutual funds which invest the corpus predominantly in the equity and equity derivative instruments. The equity instruments are known to be risk prone as the value of the stocks changes depending upon the multiple factors in the economy. However, in the favourable market conditions, equity can provide exponential returns. They are further divided into the following sub-categories:

    These are the equity mutual funds which invest in the stocks of large-cap companies. These are the companies which are ranked among the top 100 in terms of the market capitalisation. As per the norms of SEBI, a large-cap fund has to invest at least 65% of the corpus in large-cap companies.

    These schemes invest in the equity instruments of firms which are ranked between 100th to 250th according to the market capitalisation. A minimum of 65% of the corpus should be invested in these mid-cap companies.

    It is the most aggressive category of the mutual fund as a minimum of 65% of the corpus is invested in the emerging companies ranked after 250 in the market capitalisation.

    This category can take the advantage of rise and fall in every category of equity mutual funds. At least 65% of the corpus is invested in the equity market.

    It is a newly introduced category in which a minimum of 35% is invested each in large and mid-cap companies.

    These rely on the stocks that yield periodic dividends. It is also a recently introduced category.

    It is the tax saving mutual funds category which invest a minimum of 80% in the equity and its derivatives. They have a lock-in period of 3 years.

    These schemes invest a minimum of 80% of the corpus in equity instruments of companies which are associated with a particular sector.

    This category of mutual funds invest more than 80% of the corpus in equity instruments of companies which have a flavor of a particular theme.

    These funds are focused on a specific number of stocks. A maximum of 30 stocks can be chosen for more than 65% of the corpus.

    Value and contra funds follow specific investment strategies of value and contrarian investment, respectively with a minimum of 65% of the corpus.

    View Top Equity Funds

    Debt funds belong to the conservative category of mutual funds which invest the corpus in the securities thus providing fixed income. The instruments can be corporate & government bonds and money-market instruments which get matured in different tenures. They provide a steady and consistent growth of the amount invested but the returns are limited. It has 16 subcategories based on the maturity period and portfolio selection, namely:

    As the name suggests, the securities of this category of mutual funds mature in 1 day.

    These schemes invest in debt securities and money market instruments which get mature within 91 days.

    Maturity period of instruments of this category is 3 to 6 months.

    Maturity period of instruments of this category is 6 to 12 months.

    These funds invest only in the money-market instruments and have a maturity period of up to 1 year.

    Schemes of this category have portfolio of debt instruments with an average maturity period of 1-3 years.

    Mutual Fund Schemes of this category have portfolio of debt instruments with an average maturity duration of 3-4 years.

    These funds have portfolio with a maturity period of 4-7 years.

    This category has portfolio with maturity duration of more than 7 years.

    This category of debt mutual funds has no boundations on portfolio selection and the securities can be include of any maturity period.

    These funds are bound to invest at least 80% of the corpus in corporate bonds.

    In this category, a minimum of 65% of the corpus is invested in corporate bonds of below the highest-rated instruments.

    A minimum of 80% of the corpus is allocated in debt instruments of banks and PSUs.

    More than 80% of the total corpus is invested in G-secs.

    More than 80% of the total corpus is invested in G-secs with maturity duration of 10 years.

    These funds invest more than 65% of the corpus in floating rate instruments.

    View Top Debt Funds

    This category allows the investor to take the benefits of multiple asset classes through a single scheme. They generally have a mixed portfolio of equity and debt instruments. Based on the inclination towards different asset classes, they are divided into different subcategories, which are:

    This conservative category has 75-90% of the corpus allocation in debt instruments while 10-25% in equity instruments

    In the new balanced hybrid category, equal allocation of 40-60% each can be done in equity and debt instruments and no arbitrage is allowed.

    It has 60-80% of the corpus in equity instruments while 20-35% in debt instruments.

    In this category, the allocation of the corpus between equity and debt is shifted dynamically according to the market conditions.

    The multi-asset funds have to invest a minimum of 10% of the corpus each in three different asset classes.

    Schemes of this category seek arbitrage opportunities in equity derivatives with more than 65% of the corpus.

    This category allows a mixture of equity, debt, and arbitrage with a minimum of 65% in equity and its derivatives and 10% in debt instruments.

    View Top Hybrid Funds

    This category of mutual funds seeks to fulfilling a particular investment objective through the most beneficial strategy of investment. As per the norms of SEBI, there are two subcategories of solution-oriented schemes.

    This category follows the most suitable investment strategy to assist the retirees financially. They have a lock-in period of 5 years or till the retirement age is reached by the investor; whichever is earlier.

    These schemes seek to providing financial assistance in the future of children. They have a lock-in period of 5 years or till the child reaches the age of majority, whichever is earlier.

    View Top Solution Oriented Funds

    The commodity fund is a category of mutual funds where the investment is made in the commodities. The returns are generated based on the performance and condition of the particular commodity in which the corpus is invested. A commodity is a product or material which can be traded and exchanged with another product that is similar in nature. It can be gold, oil, tea, metals, minerals, etc. The price of many commodities can immensely affect the market conditions which is the reason why media primarily focuses on most of the commodity prices. Commodities are also a hedge against the inflation of an economy as the equity and commodity are traded inversely proportional to each other.

    Gold is the most popular commodity in the Indian mutual fund industry as a majority of investors prefer investing in gold compared to other offerings. Apart from the conservative and stable growth, gold has the upper hand against any other commodity for trading. Several prominent fund houses have come up with digital gold investment plans which are gaining huge popularity in the recent months.

    View Top Commodity Funds

    What Are The Advantages of Investments in Mutual Funds

    After discussing various advantages of mf over other investment options, let us examine the benefits
    and features which are rewarded to the investors.

    • Better Returns

      Gains are the top priority for the selection of investment channel for a majority of investors. Mutual funds provide an opportunity to gather maximum capital through variegated portfolio to the investors. The returns of debt schemes are decent but are much better than that of the FDs and RDs. The equity returns are much higher than any other investment method. In the last ten years, on an average, equity schemes have provided 11-16% returns while debt schemes have generated 8-10% annualized returns. Mutual funds offer the best returns in longer tenures.

    • Professional Management

      Mutual funds are managed by the professional fund managers who have expertise in the management of corpus. They are experienced in tracking the movements in the market and are aware of the right time to buy, sell, or accumulate the holdings. With high competition among the AMCs in the market, the fund managers compete against each other to win the trust of the investors and perform better than others. This competition directly benefits the investors who only need to invest, sit back, and relax while watching their money grow through a professionally handled portfolio.

    • No Lock-in Period

      Mutual funds have your back in times of emergency financial needs. Unlike most of the investment channels, they have no lock-in period. The investors can withdraw the redeemable units whenever they wish to, and no extra charges will be incurred if the exit load period is completed. ELSS and solution-oriented schemes are the only categories of mf which have a lock-in period.

    • Convenience

      It focus on delivering the most convenient services to the investors. One of the significant advantages of the mutual funds is the availability of SIP as well as lumpsum mode of investment. The systematic investment allows the investor to create surplus wealth and fulfill their long-term financial goals without imparting financial burden which is not available in other options. The recurring bank deposit is not an option as it doesn't provide enough returns to achieve many financial goals. The withdrawal option is also much comfortable and convenient than any other channel. Similar to SIP, the SWP option allows investors to withdraw a fixed amount periodically. In the Systematic Withdrawal Plan (SWP), one can redeem the units worth of selected amount periodically from the redeemable units in the portfolio. Investors can choose the most appropriate and suitable mode of investment and withdrawal personally to achieve the set financial goal.

    • Transparency

      The investor is free to track the investments in mutual funds at any time while they are growing or depreciating and take the required actions. They can trace the wealth gain on the invested amount anytime online as well as offline. Apart from that, all the mf companies are under the control of SEBI, which ensure the welfare and transparency of the corpus. The investors can forget about the worries and lead a comfortable lifestyle with the aid of mutual funds.

    • Choices Available

      A large variety is available which serves different goals and follows different strategies out of which the investors can choose the one which suit them the most. Conservative investors can select a less risky debt or hybrid scheme while aggressive investors can go for high return generating equity schemes. Mutual funds provide schemes for all kinds of investors in the most beneficial manner which is why it is considered the most comfortable method of investment.

    • Financial Discipline

      Apart from the benefits in the returns and affordability, mutual funds also embark financial discipline in the lives of investors. The regular investment through SIP for long-term maintains disciplined financial lifestyle while securing the future financially.

    There are many more benefits of mutual funds which are easy to grab by anyone. Millions of successful investors have already adapted this lucrative platform and seized multiple benefits, and the numbers are increasing like a wildfire.

    Why Is Mutual Funds Better than Other Investment Methods?

    Investment is one of the most crucial aspects for any individual in order to avoid the money to lose its buying power in the future. Various channels of investment like bank
    FDs and RDs, PPF, Corporate Bonds, etc. are available which are compared in the table below.

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    How to Start Investing in MF In India?

    The investments can be made offline as well as online.

    Offline Process

    KYC form needs to submitted along with a valid proof of ID & Address to the distributor, MF branches, Authorised banks, or dealer's office which can also provide the KYC form to be filled by the investor.

    Based on the goals, needs, tenure, risk, and investment horizon the investor needs to select the best performing mutual fund scheme for investment.

    If the KYC form is approved, which generally takes 5-7 working days, the investor has to fill the application of the AMC along with a cheque of the amount that needs to be invested. In the case of SIP, the SIP mandate form also needs to be filled and attached for effortless investment directly from the concerned bank account in the future.

    Online Process

    The investor needs to complete his/her profile by providing required personal details on the website of the provider.

    KYC form along with valid ID & address proofs need to be sent physically to the address of MySIPonline.

    Select the plan, amount, and other details and start investing right away after depositing the amount online.

    As we can infer from these steps, the online procedure is much more comfortable and burden free. The investment can be made within a few clicks while sitting
    comfortably on your couch.

    How to Choose Mutual Funds

    An investor can select a better scheme for oneself if he/she can read various parameters of the mf schemes. New investors should always take the assistance of the experts until they get familiar with these features and aspects. There are various other criteria to choose the scheme, including:

    • Returns: The parameter which is mostly focused by the laymen investor is the returns in the past which admittedly is one of the most important factors but analysing the performance of trailing and rolling returns under the different market conditions can provide a better idea of the prospect.

    • Fund Management: It is very essential to have an idea of the skill-set of management staff before pacing a bet on the mutual fund as the experience and strategies followed by the manager can immensely affect the outcomes.

    • Risk/Reward Ratio: The risk suitability is one of the most critical factors to be checked before choosing the right mutual fund. The standard deviation represents volatility of the scheme directly while the beta can give the ratio of risk taken by the fund to that of the benchmark. The returns generated by the schemes at the cost of risk influenced can be considered through parameters like Sharpe and Sortino ratios.

    • Investment Strategy: The investor should consider the suitability of the investment strategy followed by the fund according to his/her comfort. The portfolio which is generally chosen by the mutual fund can be analysed for better investment experience.

    Many other parameters are required to be considered before investing and achieving the financial goal with prosperity. To invest without a setting, a specific goal is not recommended in MF. Those investors who don't have the time or skills to read about the mutual funds investments should take the assistance of the experts rather than choosing a random scheme and creating financial hardship.

    Objectives of Mutual Funds

    Millions of investors have taken the advantage of investing online in mutual funds to fulfil multiple objectives.

    • 5yr Return
      17%

      • ELSS mutual funds allow tax-saving
      • Tax benefits of up to Rs 50,000
      • Least lock-in of 3 years
      • Most profitable tool under section 80C
      INVEST NOW

    • 5yr Return
      17%

      • Best financial assistance for retires
      • Strategically planned mutual funds
      • Multiple options available
      • Specific schemes for post retirement era
      INVEST NOW

    • 5yr Return
      15%

      • Financial assistance for chid's future
      • Unique strategies are available
      • Education and other requirements can be secured
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    • 5yr Return
      22%

      • Most convenient method
      • Different schemes for varied risk-appetites
      • Enormous wealth can be created in long term
      INVEST NOW

    Apart from all the goals mentioned above, there are multiple objectives which can be achieved with the help of MF. It is the best savings channel
    which can decorate the monthly income by adding handful returns. Efficient savings can be done for marriage, education, buying assets and properties,
    traveling and many more reasons.

    Why Choose MySIPonline for Mutual Funds

    At MySIPonline, investors are always considered as the top priority. Every need and desire of the individual investors are considered beforehand to suggest the optimum scheme. To allow the investors experience swift investment process, we provide multiple features which have satisfied more than 10,000 investors.

    • Best Fund Recommendations

      Experts at MySIPonline are highly experienced and professional in analysing the requirements of the investor. They provide the best scheme after doing extensive research on the parameters of the scheme.

    • Safe & Secure

      The payment gateway is highly secured from both ends. We ensure bank-level security on the investments and data transmission.

    • Dedicated Support Desk

      Our customer support staff is available 24*7 to provide the best in class services to the investors and solve every investment-related query.

    • Free of Cost

      No additional charges are incurred from the investors at any point in mutual funds investment.

    Several other features of our website and app have successfully fulfilled the goals and desires of the thousands of investors making MySIPonline one of the fastest growing online platforms to provide mutual funds.

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