We heard lot of people saying saving and investment are same but that is not correct. Investment may require savings but investment gives you long term benefits in future, saving remains static same like money do nothing lying in your wallet or purse- it is saved there but doesn’t grow. If you think your money and resources should do same hard work as much as I do then give an opportunity to grow your funds by investing.

This is true that Mutual Fund (MF) are subject to market risk but lot of people also have this myth that MF are only good for those who are interested in risky investments or share market or equity investment. But the good news is that- mutual funds are made to meet different investors requirement. So, you will find there are different types of funds available for investment in market and you can choose from amount of investment to type of return to type of risk you want to bear.

Through this article we will try to understand more about Mutual Funds.

What is Mutual Fund ?

Mutual fund is a fund collected from different investors who have invested with a motive to earn some gain or return from their investment.

Where the funds collected by Mutual Fund company gets invested ?

Mutual Fund company invest according to the scheme opted by investor and guidelines regulated by SEBI in equity, debt, government bonds, money market instruments, financial instruments available in market or combination of any of these. This could be open share market if it is equity scheme, debt market if it is debt investing fund and so on. If the fund selected by investor is to invest in equity share market as well as debt, then it will invest according to the defined protocols suggested for that particular fund.

Note Book with Dollar symbol

Why I should be investing through Mutual Fund and why not directly Share Market or other market ?

It’s a diversified pool of investment where fund manager is an expert and knowledgeable investing professional. The diversification in investment value reduces the risk of volatility present in share market. So he and his team managing the fund try to ensure investor investment value always give higher or better returns in the investment market. Here, investor investment value is measured as NAV.

To understand diversification better, please read through this example- To manage the risk in industry and seasonal business, MF manager would invest in two different kinds of seasonal business segments- Coffee/ Tea and Ice Cream, so in this scenario Coffee/Tea will be more profitable in Winter and Ice Cream sale/ profit will go up during summer season. Due to this seasonal effect the returns earned on investment made on these companies would become consistent throughout the year, because loss of one is set off by profit of other company.

So, to reduce the risk of volatility and inconsistencies in returns mutual funds are better than direct investment in shares, plus investment is made in diversified portfolio which reduces your risk of loss of money in long run.

Can I start an investment with small amount ?

Yes, you can start and I would suggest as early as possible and stay invested unless it is really required to pull back the money.You can start as low as Rs.500 and in few MF scheme you can start accumulating or investing in mutual fund units with Rs. 100 also. You can start Systematic Investment Plan popularly known as SIP. You can change the SIP amount as and when required based on the scheme opted, discuss with your investment adviser or broker with whom you like to associate.

Can I take out the money when required

Can I take out the money when required ?

Yes, you can take out the money, however few mutual fund schemes have exit load of 1% of investment value so check before you invest or take out the money. One can refer the scheme document or investment adviser.

What returns I can expect through MF investment ?

First you should focus on continuation of return, however general ROI % varies from fund to fund and type of fund and risk selected by investor. Debt fund usually gives lower % return due to less risk involved thereon i.e. 6%-8%. Equity MF schemes offers 10% to 25% depending upon scheme, market, and period of investment.

How to select good Mutual fund for investment ?

You can review the past trend for selected mutual fund for returns, investment portfolio etc. For this you may take help of moneycontrol.com (refer the suggested links) or valueresearchonline.com to review the details of Mutual fund and making sound decision.

How to select good Mutual fund for investment

Connect back via comment if you have any query on this subject or if you like to know anything else that I can help you get answers.


Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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Qualification: CA in Job / Business
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Location: Bangalore, Karnataka, IN
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February 2021