Mutual Funds Academy
Mutual Funds Academy provides comprehensive learning resources designed for investors across all experience levels. We're focused on providing you with fundamental knowledge empowering you to make confident and informed choices in mutual fund investing. Whether you're a beginner eager to learn the basics or an experienced investor aiming to enhance your skills, Mutual Funds Academy contains essential insights to support your financial goals.
What Is a Mutual Fund?
Mutual funds are type of investment method that pools money from multiple investors to investments, all under the observation of experts. Mutual funds can be pictured as a "community investment basket"—a place where many people combine their money to buy a broad range of investments, like stocks, bonds, or even international assets. Professional fund managers then invest this pooled money to maximize returns while managing risk. By investing in a mutual fund, individual investors can access a diversified portfolio managed by professionals, which may help reduce risk compared to investing in individual securities.
Different Types of Mutual Funds
Growth Funds
Growth Funds are a type of mutual fund that prioritizes capital appreciation by investing in companies with high growth potential, particularly in emerging or rapidly expanding sectors, typically aiming for substantial returns over the long term.
Liquid Funds
Liquid funds are ultra-short-term debt mutual funds that invest in highly liquid money market instruments. It offers high liquidity and stable returns at lower risk.
Retirement Funds
Retirement funds are specialized mutual funds designed for long-term retirement planning that typically follows a lifecycle-based investment approach. It becomes more conservative as the investor approaches retirement age.
Debt Mutual Funds
Debt mutual funds are the category that invests primarily in fixed-income securities like government bonds, corporate bonds, and money market instruments, aiming to generate steady returns with lower volatility.
Equity Mutual Funds
Equity mutual funds are fund category that mostly invests in companies from a variety of industries and market sizes. This fund typically offers higher potential returns than other asset classes but has higher market risks.
Hybrid Mutual Funds
Hybrid mutual funds are a balanced investment vehicle that combines both equity and debt instruments in various proportions to offer a mix of growth and stability.
You know?
An investment vehicle is a product or mechanism used to invest money with the goal of generating returns such as stocks, mutual funds, bonds, ETFs, and real estate.
Aggressive Hybrid Funds
Aggressive hybrid funds are a subcategory of hybrid funds that maintains a higher equity allocation (typically 65-80%) compared to debt. It is suitable for investors with a higher risk appetite.
Children Mutual Funds
Children mutual funds are a solution-oriented fund category specifically designed for children's future financial needs. It often comes with a lock-in period until the child reaches maturity.
Fixed Income Mutual Funds
Fixed income mutual funds are a type of debt fund that focuses on generating steady income through investments in various fixed-income securities within the market.
ELSS Mutual Fund (Tax Saving Mutual Funds)
ELSS mutual funds are a tax saving equity fund that qualifies for tax deduction under Section 80C of the Income Tax Act, with a mandatory three-year lock-in period. ELSS mutual fund aims to grow your money while providing Section 80C deductions.
You know?
Section 80C is a provision in the Indian Income Tax Act that allows taxpayers to reduce their taxable income by up to ₹1.5 lakh per year by investing in specified instruments.
How Mutual Funds Work
A mutual fund works like a shared money pool that experts manage. When you invest, you purchase "units" in this fund, representing a share in a diversified portfolio of assets like stocks and bonds. A professional manager oversees investments, selecting assets that align with the fund's goals, such as stocks for growth or bonds for stability. The price of your shares is called the Net Asset Value (NAV). It changes daily based on market performance. When the investments perform well, your shares become worth more. If they don't do so well, the value goes down a bit. As the fund grows, it generates returns through dividends, bond interest, or capital gains, which can either be distributed as income or reinvested, depending on the fund's structure. A major advantage of mutual funds is the ability to buy or sell shares whenever the market is open. If you need your money, you can sell your shares based on that day's price. Besides, there is a small fee each year for professionals to manage your investments.
How to Invest in Mutual Funds
Here's a simple guide to get you started with mutual fund investments:
- Research and choose suitable funds based on your goals and risk tolerance
- Complete your KYC (Know Your Customer) documentation
- Decide between lump sum investing or systematic investment plans (SIP)
- Open a trading/demat account with a broker or use the fund company's platform
- Make your investment by transferring funds
- Track your investments periodically and rebalance as needed
We've covered the basics here, but there is still more detail to discover—click to access the full guide on how to invest in mutual funds.
How to Choose Mutual Funds
Here's the basic process for selecting mutual funds: 1.Review your financial goals and investment timeline. 2.Determine how much risk you're comfortable taking. 3.Compare fund performance histories and expense ratios. Our website provides data on the best performing mutual funds in India— click to explore more.
- Look at the fund's investment strategy and holdings.
- Check the fund manager's experience and track record.
- Consider minimum investment requirements.
- Read the fund's prospectus for important details.
Tax on Mutual Funds (Updated for Union Budget 2024)
In India, mutual fund taxation varies based on the type of fund, holding period, and investment amount. Understanding the tax implications of mutual fund investments is crucial for effective financial planning.
Equity Mutual Funds:
Held > 1 year: 12.5% tax on gains above ₹1.25 lakh
Held ≤ 1 year: 20% short-term capital gains (STCG)
Debt Mutual Funds:
For investments made on or after April 1, 2024, the gains are treated as short-term capital gains. They are taxed according to the investor’s income tax slab, regardless of the holding period.
Hybrid Funds:
Equity Allocation > 65%: Taxed like equity mutual funds.
Equity Allocation ≤ 65%: Taxed like debt mutual funds.
ELSS (Tax-Saving) Funds:
Offers tax deduction up to ₹1.5 lakh under Section 80C
3-year mandatory lock-in period
Make informed investment choices - explore our complete guide on tax on mutual funds to optimize your returns within tax regulations.
Advantages and Disadvantages of Mutual Funds
Here’s a concise comparison of the advantages and disadvantages of mutual funds:
Advantages
Reduces risk by investing across various assets.
Expert fund managers handle investments.
Easy to buy and sell units on business days.
ELSS funds offer tax deductions under Section 80C.
Disadvantages
Fees can impact returns, especially in active funds.
Subject to market volatility; returns aren’t guaranteed.
Investors don’t influence individual asset selection.
Capital gains and dividends are taxable.
ETF vs Mutual Funds
Here's a comparison table highlighting the key similarities and differences between Mutual Funds and ETFs (Exchange-Traded Funds):
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