Who doesn’t like savings schemes with profitable returns and tax benefits? While Savings Accounts and Term Deposits can provide reasonable interest on investment, nothing can be compared to the high value of returns coupled with tax benefits offered by Mutual Funds.
A Mutual Fund is a common pool of savings, contributed to by many individuals, that is invested in different types of funds such as equity funds, debt funds, hybrid funds, etc. The term ‘Mutual Fund’ was coined, as the risks, returns, profits, and losses incurred by investing the funds on various assets, will be shared by all the contributors with respect to their investments. Mutual funds are managed by Asset Management companies registered with SEBI (Securities Exchange Board of India).
Any resident of India, NRI, HUF, companies, trusts, firms, cooperative societies, banks, and other non-financial institutions can invest in Mutual Funds. You can contribute to Mutual Funds by either getting in touch with agents or directly going to the Mutual Fund offices. But, the best way to invest in Mutual Funds is via online platforms as you can compare different Mutual Funds and invest according to your needs.
But before you jump into Mutual Fund investments, here are a few terms which you should know:
Fund Units
You can invest in a particular Mutual Fund only by buying a certain number of units of that fund. These units of a fund are called fund units.
Net Asset Value (NAV)
It is the monetary value of a fund unit. The Net Asset Value is subject to change as the price of a fund unit varies depending on the fund’s performance. A fund unit can be purchased or sold at the current NAV.
Lock-In Period
A lock-in period is common in Equity Linked Savings Scheme (ELSS) or Tax Savings schemes. They are mandated by law to have a lock-in for 3 years. During the lock-in period, an investor cannot liquidate his contribution to the Mutual Fund by selling his fund units. However, there are Mutual Funds which do not have any lock-in period.
Open-End Fund
These funds buy and sell units on a continuous basis and hence, allow investors to enter and exit as per their convenience.
Closed-End Fund
The unit capital of closed-end funds is fixed and they sell a specific number of units. Unlike open-ended funds, investors cannot buy the units of a closed-ended fund after its New Fund Offer period is over.
Offer Document
At the time of investing in a Mutual Fund, an investor is provided with an offer document that consists of basic information such as details of the fund manager, risk factors, fund’s performance history and so on.
Benefits Of Mutual Funds
Depending on investment in the type of assets, there are different types of Mutual Funds namely equity funds, debt funds, hybrid funds, index funds, money market funds, tax savings funds, etc.
Here are a few benefits of Mutual Funds:
- Your investment in a Mutual Fund is managed by a fund manager who uses his expertise in investments to give you high returns with low risks.
- Mutual Funds ensure diversification of risks as investments are spread across different assets. Since the chances of all shares crashing are low, the loss incurred from one share can be compensated by profit earned by the another. This minimises the risk in a Mutual Fund investment.
- Compared to the huge amount of capital required for other investments, investing in Mutual Funds is much more feasible for people from all walks of life as the investment capital required can be as low as Rs.500 through Systematic Investment Plans (SIP).
- In a Mutual Fund, an investor can manage their investment to focus on a particular asset that is yielding high profit at a particular time.
- Mutual Funds open avenues for investing in global markets.
- There are Mutual Funds like Equity Linked Savings Schemes (ELSS) which have been specifically designed to provide tax benefits. Investing in such Mutual Funds leads to tax savings.
- One can easily buy or sell a fund unit/share.
Based on the investment objective, fund type, and past results, we bring to you some Mutual Funds you can consider investing in, in 2016.
| Fund Type | Investment Plan | Benchmark | Assessment Break up | Others/Unlisted | Debt | Cash / Call | |
| Birla Sun Life Top 100 Fund – Large Cap Fund
|
Open-ended
|
Growth scheme
|
CNX NIFTY
|
Equity: 91.56%
|
0.54%
|
0.10% | 8.15% |
| Franklin India Opportunities Fund – Large Cap Fund
|
Open-ended
|
Growth scheme | S&P BSE 200
|
Equity: 91.56% | – | – | 8.43%
|
| JPMorgan India Mid and Small Cap Fund – Small & Mid Cap Fund
|
Open-ended | Growth scheme
|
CNX Midcap
|
Equity: 93.58% | – | 0.02%
|
6.40%
|
| Fund Type | Investment Plan | Benchmark | Assessment Break up | Others | Mutual Funds | Money Market | Cash / Call | |
| SBI Blue Chip Fund – Large Cap Fund
|
Open-ended
|
Growth scheme
|
S&P BSE 100 | Equity: 85.85% | 0.84%
|
1.75% | 13.40%
|
1.84%
|
| Canara Robeco Emerging Equities – Small & Mid Cap Fund
|
Open-ended
|
Growth scheme | CNX Midcap
|
Equity: 97.29%
|
– | – | Money Market: 2.44% | 0.27%
|