A lot of people invest in Mutual Funds, still some being unaware of it!!
How much do you know about it? Have you ever considered understanding the nuances of the same???
This blog of mine would contour around this topic only.
In India one may find many who are still not aware about Mutual Funds. I have an experience of my friends asking usually about the types of mutual funds in which they can invest. As I understand, it is a big problem with the generation who have just started their carrier or are new to the professional life.
Mutual Fund is a scheme launched by the Mutual Fund Houses which collects money from the investors and invest in various stocks, securities and bonds depending on the investment objective of the scheme. In India various mutual funds exist like ICICI Mutual Fund, HDFC Mutual Fund, Birla Sun Life Mutual Fund, IDFC Mutual Fund etc. Each scheme is managed by fund manager.
There are different kind of mutual fund schemes available in the market depending on the investment objectives, which are discussed below:
a.) Equity Mutual Funds: These types of funds normally invest in the equity and balance in the debt & bonds. They invest in the companies after researching them very well. Normally an investor should invest in such schemes by taking 3-5 years of time frame in mind. If you select a good fund then it can easily provide you a 15% plus annualized return. So, its better to put your money in these types of schemes if you are looking to save for your long term goal. Value Investor can start Systematic Investment Plan (SIP) also in these type of funds so he/she can save on regular basis.
b.) Equity Linked Saving Scheme (ELSS): If you are looking for tax saving scheme u/s 80C then you can opt for this fund. This can give you far better return than any other tax saving scheme. My recommendation for all the investors is to start SIP from the beginning of the financial year so that he can monthly invest in such schemes and reduce his or her burden for last 3 month of financial year. These schemes normally come with 3 year lock in period (refers the time period for which you can not withdraw the money invested).
c.) Liquid Funds: Everyone should keep their emergency fund in place so in case of emergency they dont have to break their investment instead they can use this fund. These fund have more liberty then the Fixed Deposit (FD). You can invest and can withdraw at any time without any charges. They normally give you returns better than the FDs.
d.) Index Funds: These funds blindly invest in the Index (Sensex, Nifty, Banking Nifty etc.) without researching the shares in which they are investing; so normally their return are in line with the Index. These types of funds are for high risk investors. As they are solely based on the index, and normally index move slowly upwards but rapidly downwards.
e.) Balance funds: These funds normally invest up to 65% in equity and rest in debt securities. Depending on the market conditions these scheme can reduce the equity exposure and invest in the debt securities.Investors of medium risk appetite can invest in them and can look forward for 10-15% annualized return.
f.) Debt Funds: These type of funds are of low risk, as they dont carry any kind of risk. These schemes invest in debt related securities like commercial papers, Govt. Securities, Bonds etc. They can give you better returns than the FDs.
To young investors my suggestion is to start SIP in the equity mutual fund so, they can increase their net worth. After getting the confidence they can sift to different kind of investment opportunities available.
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