A mutual fund is a series of funds that have been raised by several investors who invest in assets such as stocks and bonds. Mutual funds are handled by asset management companies (AMC). Each AMC generally has several mutual funds. The total size of the mutual fund industry in India exceeded Rs 23 billion in 2018.
Liquidity: you’ll buy and sell most mutual funds on any business day. This differs from fixed bank deposits, PPFs or insurance policies. Diversification: A mutual fund offers you exposure to a basket of stocks and bonds at a very low cost. If I were to buy them directly, I would have to invest a lot more money.
Low costs: Investment fund spending indices typically account for 1.5-2.5% of your investment. This amount island for fund administration, fund administrator fees and much more. This is possible because these costs are spread over hundreds of different investors.
Transparency: mutual funds are strictly regulated by the Indian Securities and Exchange Board (SEBI) and their net asset value (NAV) is disclosed daily. Your portfolios are also published monthly and certain other details are available to the public.
You must first select a background category. In principle, capital funds should be selected if they are ready to take high risks and have a time horizon of more than 5 years. For a moderate risk appetite, you’ll check out hybrid funds. If you have a low-risk appetite, you can stick with debt. Remember that all mutual funds, including debt securities, have certain risks.
After selecting a fund category, you can select a single fund by comparing its performance over a reasonably long period with its benchmark and its competitors. Other factors that you can also consider are:
Experience as a fund manager: How long has the fund manager been in office and what does the past show?
Portfolio: does the mutual fund generate high returns when it invests in very risky small businesses? Are you getting your return from asset allocation? What is the Fund’s debt area?
Expense Ratio: A high expense ratio will directly affect your return and reduce the wealth creation potential of the Fund.
You must first complete KYC (know your customer). It is a unique identity verification process. The process includes submitting identity and address documents such as Aadhar and PAN Card. Once you have completed your KYC, you will need to select a mutual fund and make a purchase request with payment.
Anyone can invest in mutual funds. The minimum investment can be as low as 500 rupees. Local Indians and NRIs (Non-National Indians) can invest in mutual funds. You can also invest on behalf of your spouse or children. If your child is a minor (under 18), you must provide your contact details when you invest and keep the account until the age of 18. Even businesses, LLPs, trusts, and businesses can invest in mutual funds.