Today I am going to share some very amazing features of mutual funds in India.
In India, awareness about Mutual Fund investment has been raised. According to a report released by AMFI(Association of Mutual Funds in India), mutual fund SIP accounts stood at a whopping 6.12 crore as of December 2022. The growing interest in mutual funds in India can be attributed to these figures alone. As more and more investors choose to put their money in a fund, the popularity of funds is increasing daily.
Promoting a new investment model has been enormously successful through campaigns like Mutual Fund Sahi Hai. Do you know the characteristics of a mutual fund, though? We’ll be looking at the significant features of mutual funds in this blog. In becoming an investor, you must know the essential characteristics that set and define your wealth.
What is a Mutual Fund?
Mutual funds are a type of financial instrument in which they pool capital from different investors. The pooled funds are used to invest in shares of publicly traded companies, government bonds, corporate bonds, and money market instruments. You’re not directly holding stocks of a company that mutual funds buy as an investor. You’re sharing profits or losses equally with any other investor in the pool. That is how “mutual” is associated with a mutual fund.
Top 10 Important Features Of Mutual Funds in India
- Managed By A Qualified Expert
An expert fund manager manages a mutual fund and cares for your hard-earned money. No question that managing financial investments is an easy task. In the meantime, you could find yourself drifting off to the Financial Sea if you are still waiting for assistance from an expert. Mutual fund schemes provide you with a professional who will take care of your money and other investments.
- Open-Ended And Closed-Ended Funds
By the constitution, there are two types of Mutual Funds open-ended funds and Closed Ended funds. An investor can invest the money as they see fit in an open-ended fund. Similarly, the money can be withdrawn at any time. These funds have the highest degree of freedom and flexibility about investment timing.
An investor can only invest money in a closed fund for a limited time. When a scheme is implemented, investors are allowed to invest for a fixed period. If an investor would like to invest, he must put money into the fund during periods that do not provide units or any other period in which investment will be made.
- Lump Sum And SIP Investment
As is evident from the previous point, you also have time flexibility to invest in an open-ended fund. In the same way, you are not restricted in your frequency or size of investments per year. If you invest 50000 at a time or make uninvestable investments like Rs 10,000 in one month and R25000 in the other, all of it is considered a lump sum investment.
You can invest in these funds regularly. Mutual funds, by contrast, let you invest every once in a while. In this case, investing a fixed amount at a fixed interval is called the Systematic Investment Plan (SIP). The amount and intervals may be decided upon using the SIP—for instance, month, quarter, week, etc. The SIP is like a regular deposit.
The NAV on the day of redemption may be used to redeem your investment during business or working days. You would receive your funds from the bank in 3 days, according to the type of mutual fund you’ve invested. However, close-ended funds only allow redemptions once they have reached the maturity of the mutual fund. Similarly, ELSS mutual funds have a locking period of 3 years.
Mutual funds are a perfect example of the adage “Do not put all your eggs in one basket,” as investing in various securities and asset classes reduces risk. For example, equity funds invest in a stock pool of stocks within different sectors so that risk can be reduced compared to Direct Equity Investments, where your portfolio is allocated to each company’s shares.
Low-cost investment options include mutual funds. The fund can take advantage of a pool of shares and debt securities which otherwise may not be available for the ordinary investor or requires an additional investment amount if there are multiple investments from different investors. These pooling investments thus offer the advantages of economies of scale. In return, the minor fund expenses address lower costs to investors, such as brokering, etc.
A Scheme Information Document of each Mutual Fund is readily accessible on a fund house’s website, which enables you to gain information about its holdings, managing director, or anything else. Moreover, the portfolio investment values are published on AMC’s and AMFI’s websites to provide investors with a constant view of their Mutual Fund portfolios.
- Minimal Charges
Mutual funds are also free of charge to individuals who earn. To invest in mutual funds, you must pay a small amount, known as the expense ratio, to the fund houses. Fund houses may differ in the expense ratio and further charges to be charged. However, costs are below the rest of the asset management funds.
- Regulated by SEBI
Before the mutual fund scheme is launched, all fund companies must be registered with SEBI. SEBI neglects to ensure the transparency and accountability of fund management companies, thereby protecting investors. It ensures that SEBI does not use investor funds for any unjustified purpose. It ensures that fraud and malpractice are not a threat to mutual funds.
- Income Tax Benefits
Tax Deducted at Source TDS is now a component of income, and it’s debited from all your transactions, whether they are wages or professional salaries, or any other sources such as interest in fixed deposits; you get the amount after tax deduction. On the contrary, there is no deduction of TDS for mutual fund income. It does not imply that no tax has been imposed but merely means that at the time of submission of an income tax return, you will have to assess your tax liability relating to the sale of funds.
- Ease of Purchasing
The online purchasing and selling of mutual funds have made the life of investors much easier than you can invest through offline channels. There’s no need to go to the office of a mutual fund company. All you need to do is visit the official website of the Asset Management Company. You can compare the different products a mutual fund company offers and invest online. It is simple, convenient, and fast all the way through.
Mutual Fund Functions
- New fund offer (NFO) release
By opening an NFO, an asset management company may launch a Mutual Fund Scheme. By the time the scheme is launched, it will have developed and shared its strategy. It allows investors to decide on the level and amount of investment that needs to be made. A low price, such as 10 rupees, is often charged for NFO units.
- Investments in securities
The scheme strategy shall determine the fund manager’s investment approach. Before making an investment decision, the fund manager conducts extensive research on the economy, industry, and company. He shall buy the best security to maximize the unit holder’s returns.
- Return of Funds
With mutual funds generating returns, the gains can be distributed to shareholders or retained in the system for further growth. If the investor chooses the IDCW option (income distribution cum capital withdrawal) then they receive payouts. The benefits are preserved in the system and can be further increased when they decide to make a growth option.
My Opinion About Mutual Funds in India
A mutual fund is the best option to invest regularly and with a plan. In India, this style of investment becoming very popular in this recent times as you can start with 500 rupees or in some cases also from 100 rupees. I have shared some of the most eligible features of mutual funds in India.
There is a strict regulator for the mutual fund industry and a strong safety model. Still, investors need to take special attention when investing in mutual funds and need to make well research, back checks, and which plan they are investing in. As I always said go for equity long-term large-cap funds, and you can carry other funds also.
Mutual funds represent an excellent investment option capable of generating capital in the form of lasting wealth for investors. Mutual funds also have investment schemes for every goal in life, including creating an asset pool and retirement. You’ve got schemes for investors who are risk-averse and conservative. Diversification, low costs, flexibility to invest in smaller amounts, and professional fund management are advantages of the option.
Frequently Asked Questions
Q1. How do investors redeem their funds?
The investor must log on to his online mutual fund account, press the redemption button, and confirm the transaction. Within a turnaround period, the redemption amount shall be credited to his bank account.
Q2. Who regulates mutual funds in India?
Mutual funds shall be governed by the Securities and Exchange Board of India. SEBI is committed to protecting investors’ interests. The Relationship of Common Subsidizes in India (AMFI) is a relationship of all the Resource board Organizations of SEBI-enrolled shared assets in India. It shall also ensure the best business practices and code of conduct in all matters about the Mutual Funds Industry and representation for RBI, SEBI, and the Government of India.
Q3. Are mutual funds better than stocks?
A stock’s generally more risky than a mutual fund. Mutual funds reduce the risk of investment when an investor pools his money into many stocks or bonds in a bond fund. In turn, this reduces the risk because of diversification. For this reason, several investors believe that mutual fund investments are an excellent way to buy stocks without risk.
Q4. Is investing in mutual funds a good idea?
Mutual fund investment is intended to achieve a higher level of returns, as opposed to that provided by conventional investments. More extensive exposure to the market and expert management of funds contribute to these higher returns. It is available at a nominal initial capital via the Systematic Investment Plan (SIP) route. Well, that’s a good idea.
Q5. How do I invest in mutual funds?
Firstly, investors must understand their risk capabilities and assess their financial objectives. Risk profiling is the process by which one identifies how much risk one may be able to take. Asset allocation is another step, and dividing the funds into different asset classes will be necessary once a risk profile has been identified. Finally, a fund must be established to invest in each asset class. The investment objective and past performance mutual funds can be compared.