mutual funds
A few years back it was an unfamiliar form of investment for many Indian individuals. Today, however, the situation is completely different.
Mutual funds are now considered as a simple and simple option to invest to help in the growth of wealth in India. Most of the alternative investment solutions do not allow you to contribute as little as Rs 500, which a mutual fund does by using SIP. You can invest in mutual funds having financial goals and risk profile matching your risk profile.
How do mutual funds work?
An asset management company (AMC) forms a mutual fund by aggregating contributions from diverse individuals and institutional investors with similar investment goals. A fund manager is a professional who manages a deposit investment by carefully investing in assets to maximize returns for investors while staying true to the fund’s investment objectives.
Professional fund managers with a proven track record of fund management and a thorough understanding of the markets. The cost ratio is the annual fee charged by the fund house for operating a mutual fund.
Benefits of investing in mutual funds
Facility:
mutual fund
Planning can be a simple and hassle free process. The entire process is paperless, and can be completed from the comfort of your own home. And once you start investing, you can monitor your portfolio and make adjustments as needed using your computer or smartphone.
Investment Methods: Depending on your financial circumstances and needs, you can invest a flat amount either through Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP).
tax benefits: Mutual funds are a tax-advantaged investment option. Short-term capital gains are taxed at 15%, while long-term capital gains are tax free up to Rs. 1 lakh per financial year and taxed at 10% thereafter. Short-term capital gains were taxed at your marginal rate, while long-term capital gains after indexation gains in non-equity funds were taxed at 20%.
Interest earned on most classic fixed-income investments is taxed at the investor’s marginal tax rate. Compared to traditional fixed income investments, mutual funds offer investors a significant tax advantage in terms of higher tax rates.
Low Initial Investment: By investing Rs 500 per month in mutual funds of your choice through SIP, you can build a diversified mutual fund portfolio. You can also invest in a lump sum or a Systematic Investment Plan (SIP). Compared to a lump sum investment, however, a SIP can reduce the total cost of acquisition while maximizing the potential of compounding.
Professional Fund Management: Mutual fund investments are handled by a professional fund manager with the help of a research team. The fund manager prepares the asset allocation investment plan. The research team selects suitable securities as per the investment objectives of the fund.
Diversification: It is important to diversify your investments if you want to reduce the chances of losing money. A well-diversified portfolio can counter the underperformance of a particular stock or sector while protecting your overall investment. Mutual funds are designed with proper diversification in mind.
For example, a mutual fund that mimics the S&P BSE 100 Index may allow you to invest in more than 100 stocks in one fund. It is an easy and affordable way to diversify your portfolio.
How can you invest in mutual funds?
Before investing in any financial instrument like mutual funds, you must follow the Know Your Customer (KYC) norms. The following documents are required for KYC-compliant:
- A recent passport size photo.
- Identity proof (eg, passport, PAN card)
- A copy of your PAN card
- Address proof (eg, Aadhar card)
- Congratulations! The KYC paperwork for the letter has been completed. The KYC form is available through Registrar and Transfer Agent (RTA) and Asset Management Companies (AMC). You can also approach a mutual fund provider or financial advisor for assistance in completing the KYC requirements.
Another way to invest in mutual funds through a mutual fund distributor is through a regular scheme. The mutual fund house may pay commission to the mutual fund distributor or middleman. You can invest in mutual funds offline by visiting a mutual fund house, filling an application form and submitting KYC documents.
final thoughts
Investors have recently been provided with the facility to trade mutual funds online. However, the criteria for selecting a corporation to invest in are pretty standard: What is the track record of the company? What kind of facilities, services and products do they provide? How easy is it to work with them and their trading platform? When it comes to selecting a mutual fund, the basics to consider are how its objective aligns with your investment objectives, the level of risk compared to your risk tolerance, and the magnitude of its fees.
Mutual fund investments are subject to market risks, read all the documents related to the scheme carefully.