Mutual Funds Guide – A Beginners Handbook to Start Your Investment Journey in Mutual Funds

This comprehensive mutual fund investment guide includes detailed information all you need before investing in mutual funds. Download mutual funds guide PDF for FREE!

 

Sign up for free to download this guide

(Once you login, visit Learn –> Resources)

Download Koppr App to get this guide.

(Once you Sign up, visit Learn –> Resources)

Chapters

What are Mutual Funds and how do they work?

Top 10 Benefits of Investing in Mutual Funds

What are the different types of mutual fund schemes in India?

What is the process of buying the Mutual Fund in India?

How to choose the best Mutual Fund scheme for myself?

What is the process of buying the Mutual Fund in India?

Top Things to know about buying Mutual Funds in India

All you need to know about Mutual Funds Taxation

#1

What are Mutual Funds and how do they work?

As an investor, you look for various investment assets like equities, bonds, real estate, and others to invest in. There are various investment options available in the market that can suit varying risk-return requirements.

A mutual fund is one such investment option that fits into every investor’s needs. With more than 2,500 mutual fund schemes available in India, mutual funds as an investment vehicle have become popular over the past few decades.

What are Mutual Funds ?

A mutual fund is an investment avenue that pools money from investors with a common objective and invests the pooled money into various asset classes like stocks, bonds and other assets based on the objective of the scheme.

Fundamentally, a mutual fund is a trust consisting of investors with similar objectives, and the pool of money by them is invested and managed by Asset Management Companies (AMC).

Asset Management Company employs professional fund managers for managing each mutual fund scheme using their expertise.

The Asset Management Companies are approved and regulated by the Securities and Exchange Board of India (SEBI). Mutual fund trust includes sponsors, trustees, custodians, and asset management companies (AMC).

Here is a basic structure of mutual funds in India –

 

 

How do mutual funds work?

When you consider investing in mutual funds, it is important to know how it works. You first need to understand a few important terminologies that can help you understand the concept of mutual funds thoroughly.

 

Mutual fund unit: Mutual fund unit denotes the extent of your ownership in that particular fund just like an equity share that represents your extent of ownership in the company.

 

Net Asset Value (NAV): Net asset value or NAV is the funds per unit price. NAV is calculated on a daily basis at the end of market hours as the value of underlying securities in mutual fund investments changes every day. Basically, NAV is calculated by dividing the total net asset value (asset – liabilities) by the number of units outstanding.

 

Assets under Management (AUM): Assets under management (AUM) is the total investment value or market value of assets that a mutual fund holds.

 

Enroll in our Free Mutual Funds Course and start your investing journey now. Join Now!!

 

Fund Portfolio: Fund portfolio is a collection of investments held by a mutual fund that is invested in different asset classes by the fund manager.

 

Fund Manager: A fund manager is a professional appointed by the asset management company for implementing investment strategy and taking decisions to buy and sell securities using market expertise.

 

Working of mutual funds is quite simple. Here is a simple step-by-step guide that can help you understand the concept of working of mutual funds –

  • Like-minded investors like you invest in a mutual fund scheme by pooling money.
  • Mutual fund trust that collects the money allots you fund units based on the amount of investment you make. The price of each unit is referred to as net asset value (NAV).
  • Fund managers appointed by the Asset Management Company (AMC) take the decision of investing money in various securities like stocks, bonds, money market instruments, and other asset classes depending on the investment objective. The fund manager also decides on the allocation of the fund portfolio.
  • Depending on the capital market performance, buying and selling decisions of fund managers, investments made in securities will generate profit or income.
  • Returns earned from the investments into securities are passed back to the investors.

 

The following chart explains the concept of mutual funds in the simplest way –

 

 

You can also understand the concept of mutual funds easily with the example below. Let’s say SBI Mutual Fund launches a new equity-oriented mutual fund scheme.

Let’s say a fund collects INR 10 crores from 1000 investors assuming each investor invests INR. 1 lakh. In the next step, Asset Management Company allocates units. Let’s assume, the company issues units at the net asset value of INR 10.

That means, if you have invested INR. 1 lakh in the fund, you would get 10,000 units. A total of 1Cr units will be allocated to all the investors. Fund managers will now invest INR 10 crores into various stocks, say about 10 stocks that form the portfolio of the fund.

 

Read our article on What are the 10 Benefits of Investing in Mutual Funds

 

Fund managers will also maintain some liquid cash to deal with redemptions. Let’s say after a few days the portfolio of stocks grows to INR 11 crore, assuming that there is no change in the portfolio and number of investors.

That means the net asset value of the fund is now INR 11 (INR 11 cr/1 cr). If you redeem, you would get INR 1.1 lakh, which means INR 10,000 would be your gain.

This is just an illustration for easy understanding of the concept; in actual scenarios, there may be buying and selling on a daily basis. Understanding the investment and its concept can help you make informed and rational investment decisions.

 

Do you have any questions related to Mutual Funds? Koppr Tribe is here to answer all your questions. Join our Tribe Now. Download the Koppr App

#2

Top 10 Benefits of Investing in Mutual Funds

A mutual fund is a smart investment option that is easy to understand, convenient and offers you various amazing benefits.

Here are the top 10 benefits of investing in mutual funds. Mutual funds are the ideal investment choices for investors who do not directly want to invest in the capital market.

As an investor, you can easily find a mutual fund investment option that suits your investment goals, income, risk appetite, and return expectations.

Before you understand the various mutual fund options available and how to invest in them, it is essential to know the benefits of investing in mutual funds.

Following are the benefits of investing in mutual funds –

 

Easy to understand

Mutual funds are investment options with a simple structure that every investor can understand. To invest in a mutual fund and become successful, you don’t need to have experience, expertise, and complete knowledge of financial markets. Investing in mutual funds and redeeming them is incredibly easy which requires no market expertise.

 

Professional management

Mutual funds are managed by a team of experts. Each mutual fund scheme is managed by fund managers who take care of building a fund’s portfolio, buying, selling, and managing full time using their market expertise.

Fund managers also constantly do extensive research and analyze the financial market while taking buy/sell decisions in order to protect your wealth.

You can simply start investing in mutual funds without mastering finance as the growth and performance of your mutual fund investment will be professionally managed and monitored by fund managers.

 

Read our blog on Top 10 Things to Know Before Investing in Mutual Funds in India

 

Easily accessible

Mutual funds are easily accessible through mutual fund companies, banks, brokerage firms, online brokers, and insurance companies. With the online process of buying, you can invest in mutual funds without any hassles online.

 

Offers Diversification

Diversification of risk is one of the biggest benefits offered by mutual fund investments. As mutual funds invest in various securities, there are a variety of risks involved such as market risk, credit risk, and interest rate risk etc.

However, in mutual funds, you make indirect investments into the financial market instead of directly investing along with other like-minded investors.

Fund managers invest in a variety of stocks and securities in a mutual fund portfolio, your investment risk is diversified across different sectors. When compared with stocks, mutual fund investments are more diversified.

 

Cost-effective

Expenses or cost involved in managing an actively managed mutual fund portfolio is relatively lower than the cost of managing a portfolio of individual securities.

When you invest in mutual funds, you will have to incur fund management charges of up to 2.50%. Some of the mutual funds that come with predefined time frames may have some exit load that you need to incur if you redeem before the predefined time frame of the investment.

However, the cost involved is lower when you compare it with the transaction cost and brokerage involved in regular stock investing.

 

Smaller capital outlay

When it comes to stocks, you need to have a large corpus to create a diversified portfolio of individual stocks.

On the other hand, in mutual fund investment, you can own a diversified portfolio of securities with even a smaller capital outlay as mutual funds work on the pooling of money. When you are investing a lump sum in mutual funds, you can even start with INR. 5,000.

When you are investing in mutual funds in a disciplined way i.e. a systematic investment plan, you can start with as small as INR 500 monthly.

 

Product Variety

There are a variety of mutual fund schemes available that come with varying risk-return characteristics to suit your varying needs.

You can choose a mutual fund scheme that is suitable for risk profile, time horizon, and investment objective.

For example, there are monthly income plans in mutual funds which address your regular income requirement at minimal risk involved.

 

Here’s a FREE certification course on Mutual Funds

 

Flexible investing

Mutual fund investment offers you many flexible investing options such as lump sum investment, systematic investment plan, systematic withdrawal plan and dividend reinvestment etc.

Many mutual funds do not come with a predefined time frame which offers you the flexibility to redeem anytime to meet urgent liquidity requirements.

 

Well regulated

Mutual funds in India are well regulated by well-known regulatory bodies like the Securities and Exchange Board of India (SEBI) and the Association of Mutual Funds in India (AMFI).

Every mutual fund trust needs to be registered with the Securities and Exchange Board of India (SEBI) and the guidelines are given by the SEBI need to be followed by the mutual fund companies.

 

Transparency

Mutual funds offer you transparency by disclosing every detail related to a mutual fund scheme fact sheet.

Monthly factsheets of mutual funds help you keep a tab on all your mutual fund investments.

A mutual fund is a smart investment option that is easy to understand, convenient, and offers you various amazing benefits.

With professional management advantage, you can start investing systematically in mutual funds.

You can choose the investment option, fund type that is suitable based on your risk appetite and investment objective

 

Get the latest news on Mutual Funds at your fingertips. Get access to News, Videos, podcasts on Mutual Funds. Download Koppr App Now!

#3

What are the different types of mutual fund schemes in India?

A mutual fund is a smart investment option that is easy to understand, convenient, and offers you various amazing benefits.

Here are the top 10 benefits of investing in mutual funds. Mutual funds are the ideal investment choices for investors who do not directly want to invest in the capital market.

What are the different types of mutual fund schemes in India?

By investing in mutual funds, you can create a diversified and comprehensive portfolio that can help you meet your various short-term and long-term financial goals.

As mutual funds offer you a variety of plans that can suit your risk appetite and investment need. Understanding the types of mutual funds available will help you make an informed choice.

Mutual funds are categorized into various types based on the asset class, structure, investment strategy, and specialty, and many such factors.

Here is a comprehensive guide on the classification of mutual funds and various types of mutual funds available under each category –

 

A) Classification of mutual funds based on the asset class

Mutual funds are mainly classified based on the types of underlying assets in their portfolio. The following are the classification of mutual funds based on the asset class – What are the different types of mutual fund schemes in India?

 

1. Equity mutual funds

Equity mutual funds are the mutual funds that primarily invest in stocks. Equity mutual funds involve high risk in comparison to other funds and are mainly suitable for investors with high-risk appetites and of long-term investment perspective.

Equity funds are further classified into various types depending on the types of stocks and investment style.

Following are the main categories of equity funds –

 

a) Large cap funds

These funds invest 80% of your money into stocks of large-cap companies. By investing in blue-chip companies, large-cap funds offer you stability to a larger extent along with the good potential for growth over the long run.

 

b) Mid-cap funds

Mid-cap funds mainly allocate your money into equity and equity-related instruments of mid-cap companies. As these companies can have good growth potential, you can expect a higher return with higher risk over the long run.

 

c) Small-cap funds

Small-cap funds allocate a minimum of 65% of your money into stocks of small-cap companies. These funds come with the highest risk and also hold the potential to generate high returns.

 

Here’s a FREE certification course on Mutual Funds

 

d) Multi-cap funds

These are the most diversified funds that invest your money into all types of companies’ right large-cap to small-cap. This can offer you considerable return as risk is diversified.

 

e) Value funds

Fund managers of value funds mainly follow a value investing strategy wherein he identifies the value stock to create a portfolio. This can offer you long-term wealth creation opportunities.

 

f) Sector-specific funds

Sector-specific funds mainly focus on stocks of the specific sector for investing the major chunk of pooled money. For example, investing in IT stocks and pharma stocks, etc.

 

Read our article on How to Choose the Best Mutual Fund Scheme for Myself According to my Asset Allocation and Risk Profile?

 

2. Debt mutual funds

Debt Mutual funds are the type of mutual funds that primarily invest in debt instruments like treasury bills, bank deposits, and other fixed income-bearing securities.

Debt funds are further classified as

 

a) Liquid funds

Liquid funds invest mainly in money market securities like call money, treasury bills, and certificate deposits of up to 91 days maturity. These funds are highly liquid, very low risk, and are an ideal choice to park your excess corpus for a shorter period.

 

b) Short duration funds

Short duration funds invest in fixed income securities with maturity ranging between 1 year and 3 years. Short-duration funds are an ideal choice for you if you are a conservative investor with a short-term goal.

 

c) Medium duration funds

Medium duration funds invest in fixed income securities with maturity ranging between 3 years and 5 years. You can expect a moderate return with capital protection.

 

d) Long duration funds

Long duration funds invest in fixed income securities with a maturity of more than 7 years. You can expect a relatively higher yield.

 

e) Credit risk funds

Credit risk funds primarily invest in the highest-rated debt instruments.

 

Want to learn Mutual Funds in Hindi? Then enroll yourself in our Mutual Funds Course in Hindi

 

f) Dynamic bond funds

Dynamic bond funds are actively managed by the fund manager by investing in debt instruments across the duration depending on the interest rate scenario.

 

3. Balanced mutual funds

Balanced mutual funds are hybrid in nature as they invest in both equity and debt securities in a significant proportion. Balanced funds can offer to moderate to a good return.

 

B) Classification of mutual funds based on the asset class

Mutual funds are classified based on their structure which defines the flexibility it offers to you as an investor.

 

Following are the types of mutual funds categorized based on the structure –

 

1) Open-ended mutual funds

Open-ended mutual funds are the type of mutual funds that can be purchased and redeemed anytime. There is also a restriction on the upper cap for investing in open-ended mutual funds.

These funds do not come with any predefined time frame or maturity period. The net asset value of open-ended mutual funds is declared on a daily basis.

You can invest or redeem open-ended mutual funds based on the NAV prevailing on that day which makes them the most liquid.

As there is continuity in investment, the historical performance of open ended funds can be easily tracked and referred for making investment decisions.

 

2) Closed-ended mutual funds

You can subscribe for closed-ended mutual funds during the New Fund Offer (NFO) period. A fixed number of units are allocated and you cannot redeem these units till the completion of the maturity period.

Though closed-ended mutual funds are not liquid in nature, they offer stability. In the case of closed-ended funds, you cannot sell back your fund units to the mutual fund houses. These funds are listed and traded on an exchange just like exchange-traded funds.

 

3) Interval funds

Interval funds swing both sides with the characteristics of both open ended mutual funds and closed-ended mutual funds.

These funds are open for investment only at specific time intervals as directed by the mutual fund houses as they invest mainly in unconventional and illiquid assets.

 

Check out our blog on How to Buy Mutual funds in India – A Complete Guide

 

C) Classification of mutual funds based on investment strategy

The following are the classification of mutual funds based on their investment strategy –

 

1) Growth mutual funds

Growth mutual funds are primarily based on a growth investment strategy. The main of these funds is capital appreciation by investing in growth stocks.

 

2) Liquid funds

Liquid funds are based on the strategy of offering high liquidity to investors.

 

3) Income funds

Income funds are a type of debt fund that intends to offer regular income to investors. If you are a conservative investor looking for a regular income option, you can consider income funds.

 

4) Tax-saving mutual funds

Tax saving funds or ELSS (Equity Linked Savings Schemes) are equity oriented funds that are designed to provide you tax benefits under Section 80C of the Income Tax Act, 1961. These funds come with three years lock-in period.

 

Want to know more about Tax in Mutual Funds? Read our complete article on The Concept of Taxation in Mutual Funds

 

5) Pension funds

Pension funds are primarily based on a long-term investment strategy that can help you draw monthly income or pension after retirement.

 

6) Fixed maturity funds

Fixed maturity funds invest mainly in bonds and debt securities that allow you to invest for a particular period ranging from one month to five years.

 

D) Classification of mutual funds based on specialty

Following are the classification of mutual funds based on their specialty –

 

1) Index funds

Index funds replicate the performance of a particular index such as NSE 50 or Sensex. These are passively managed funds.

 

2) Gilt funds

Gilt funds are the funds that invest predominantly in government securities. These are funds with almost no risk.

 

3) Global funds

These are the funds that invest in markets across the globe, including India. These funds are unique and diversified which can offer you a potentially high return over the long term.

 

4) Fund of funds

These are funds that invest in other mutual fund schemes and offer you diversification by spreading the risk.

 

4) Exchange-traded funds

Exchange-traded funds are the type of index funds that are listed and traded on exchange-like equity stocks.

Knowing the wide variety of mutual funds available and understanding each one of them can help you make an informed decision.

 

Do you have any questions related to Mutual Funds? Koppr Tribe is here to answer all your questions. Join our Tribe Now. Download the Koppr App

#4

What is the process of buying the Mutual Fund in India?

Mutual funds are one such investment avenue that is easy to understand and convenient to invest in. Buying a mutual fund in India is very simple and easy.

With the evolution, the online process of buying mutual funds has become more popular in India which helps you invest in funds that you desire in no time effortlessly.

With the good accessibility of mutual funds, there are multiple ways through which you can buy mutual funds.

Before understanding the buying process of mutual funds, it is important for you to have the checklist of documents ready. Following are the documents that you would require to start investing in mutual funds –

1) PAN Card

2) Bank account

  • You require a bank account with a net banking facility for online purchase
  • For offline purchase of mutual fund, a personalized cheque leaf (canceled) with IFSC code, MICR code. You can also produce a bank passbook or bank account statement as proof.

 

KYC (Know Your Client) is a compulsory requirement by the regulator Securities and Exchange Board of India (SEBI) in order to prevent money laundering under Money Laundering Act, 2002.

You need to have your KYC verified with the intermediaries registered with the Securities and Exchange Board of India (SEBI) before starting investing in mutual funds. This mandatory requirement of KYC verification by SEBI is a one-time process.

KYC needs to be registered with KYC Registration Agencies (KRA). You can initiate registration with mutual fund distributors, mutual fund houses, or directly through KYC Registration Agencies (KRA) online.

 

Read our blog on What are the different types of Mutual Fund schemes in India?

 

Following are the KRAs in India registered with SEBI –

  • CDSL Ventures Limited (CVL)
  • NSDL Database Management Limited (NDML)
  • DotEx International Limited (DotEx)
  • CAMS Investor Services Private Limited
  • Karvy Data management Services limited

 

For registration of KYC, you need to keep certain documents ready. Following are the documents required –

 

  • Proof of identity – PAN card/Driving license/ Passport/Voter ID/ Aadhaar card etc.
  • Proof of address – Passport/Ration card/Driving license/Bank account statement/lease agreement etc.
  • Passport size photograph

 

Enclose self-attested documents along with a filled and signed KYC form. Your documents will be verified in person with the originals.

 

Here’s a FREE certification course on Mutual Funds

 

If your KYC is not registered, you can also get the eKYC done. You can do it through the online platform of KYC Registration Agencies (KRA) with a few simple steps –

  1. Visit the website of KYC Registration Agencies (KRA)
  2. Click on register for eKYC
  3. Fill in the KYC form
  4. Input your UIDAI number and mobile number
  5. Input the OTP (One-time password) received on mobile to verify
  6. Accept the terms and conditions and complete the process.

 

Once your KYC is registered or eKYC is done, you can start investing in mutual funds. You have two modes to buy mutual funds – online and offline.

Online mode is the most preferred mode to buy mutual funds nowadays than the conventional offline method of buying mutual funds. Step-by-step process:

Once you decide in which fund to invest in, you can follow the simple process of buying mutual funds mentioned below –

 

1) Offline Method

You can visit specific mutual fund house offices, branches of distributors, or brokers to avail mutual fund forms.

You can fill in the forms with complete details of investment type (Lumpsum/Systematic investment plan), mode of payment, bank details, and holding type.

Enclose the payment cheque/demand draft along with the signed form and submit it. You can submit the documents directly at the point of sale of registrars like Karvy or CAMS.

 

Want to brush up on mutual funds again? The take a quick look at What are Mutual Funds? | How Does Mutual Fund Work? Blog

 

2) Online Method

You can conveniently buy mutual funds online in no time through many platforms. Following are some of the ways to buy mutual funds online –

 

  1. Through AMC (Asset Management Companies): You can visit the website of fund houses and start investing your desired choice of funds if your KYC is already verified. There are some fund houses that provide mobile applications for purchasing mutual funds.
  2. Through Intermediaries: Intermediaries like banks and stockbroking companies offer you an online platform to invest in mutual funds. You can log in to their net banking facility or Demat account facility and follow the procedure of buying online.
  3. Through online portals: There are many online portals and Fintech companies that are tied up with many AMCs. You can choose a fund of your choice and invest online through their portal.

 

Be it any of the ways online, there are some simple steps to follow for mutual fund buying. Following are the processes involved.

 

  1. Logon to the website/net banking/online trading account/any online portal
  2. Follow the process of registration with minimal details needed such as name, date of birth, PAN and mobile number, etc. If you are not KYC verified, get the eKYC done.
  3. If you are already a registered user you can start investing
  4. Fill in your bank details and nominee details that need to be linked to your mutual fund investment
  5. Provide your investment details such as type of investment (lump sum/SIP), scheme, and options (growth/dividend), period and the monthly amount for SIPs, and any other details required.
  6. Proceed to make the payment online and complete your buying process

 

Get the latest news on Mutual Funds at your fingertips. Get access to News, Videos, podcasts on Mutual Funds. Download Koppr App Now!

#5

How to choose the best Mutual Fund scheme for myself?

When it comes to investing, risk tolerance is an important component to consider. Depending upon your risk-taking ability, you can decide your asset allocation to reach your financial goals.

When you invest according to your risk profile, you will be in a position to manage the swings in your investment performances effectively.

When it comes to mutual fund investments, there are funds available to suit each type of investor with different financial goals, risk profiles, and time horizons.

Before you invest in a mutual fund scheme, you need to first consider a few points and be clear about them –

 

1) What are your financial goals?

You may have many financial goals right from some short-term goals like buying a car, paying school fees to medium-term goals like buying a home, family vacation and long-term goals like retirement planning, children’s higher education and marriage. You need to plan separately for each goal.

 

2) How much do you need to save to reach your goals?

When your goals are clear, you can estimate how much you would need to save today to reach there after considering the inflation.

 

3) What is the time horizon you keep to achieve these goals?

Time horizon that you have to reach at your goals is an important consideration while investing. There are mutual funds that are particularly meant for short-duration and there are also funds for long duration goals like retirement.

 

Here’s a FREE certification course on Mutual Funds

 

4) What is your risk taking ability?

Your willingness and ability to take risk defines your choice of investments ultimately.

Your current age, number of dependents, annual income, amount that you have set aside as emergency fund, amount that you can invest monthly, liquidity requirement, your willingness to take risk and return expectation etc are some of the key factors that define your risk profile.

Based on your risk taking ability, your asset allocation needs to be done. You can seek the help of financial experts to know your risk profile. Your risk profiling can be done with a simple questionnaire.

When you understand your savings requirement based on your financial goals, time horizon and risk profile, you can start knowing the suitability of each type of mutual fund with different risk-return characteristics as per your requirement.

Selection of mutual funds as per your risk profile and asset allocation

You can choose the funds based on your risk profile and defined asset allocation for you across various asset classes like equity, debt, gold and real estate etc.

 

1) Aggressive/dynamic investor

You are an aggressive investor which means you are willing to take high risk in investments that have higher volatility.

In such cases, you would also expect higher returns for maximising your wealth. Equity mutual fund category is the ideal choice for your risk profile.

You can consider to invest in some small-cap and mid-cap equity funds that come with relatively higher risk and potential for higher return.

You can also consider some sector funds that invest in stocks of particular sectors. Mainly, you need to also consider the investment horizon to reach your goals.

Equity mutual funds are well suited for capital appreciation and to achieve long-term goals. In case you have to invest for medium-term goals you can consider investing in equity-oriented balanced funds.

You can also consider investing a portion of your money into debt funds keeping in mind your short-term goals and liquidity requirements.

 

Read  our article on Best Mutual Funds to Invest in 2022 and start investing now

 

2) Balanced Investor

You are a balanced investor, which means you are willing to take medium risks while investing. You would prefer to invest in financial avenues that are not highly volatile.

Medium-risk investors like you can consider to invest in equity mutual funds like bluechip funds or large cap equity funds that invest in stocks of well-established companies for your long-term goals like for retirement corpus.

Though equity involves high risk, it can perform well over the long-run. You can also consider to invest in funds with a diversified equity portfolio. For your medium-term goals, you can consider investing in hybrid funds.

As hybrid funds invest in both equity and debt in an almost equal proportion, this can very well suit your asset allocation preference and risk taking ability.

You can also invest a part of your money into short-term debt funds for liquidity purposes.

 

3) Conservative investor

You are a conservative investor, which means you are a risk averse or an investor with low risk preference.

While investing, you would prefer avenues that can offer your stability and income rather than capital appreciation and growth. You can consider investing in long-term debt funds for your long-term goals.

You can consider retirement savings funds or pension funds. For regular income, you can consider investing in income funds.

Credit risk funds can also be a good choice for your risk profile. Defining asset allocation based on your risk profile is extremely important to successfully reach your financial goals.

While selecting the best suitable mutual funds as per your risk profile, it is also important to consider your existing asset allocation and investments in other financial products

 

Do you have any questions related to Mutual Funds? Koppr Tribe is here to answer all your questions. Join our Tribe Now. Download the Koppr App

#6

Top 10 Things to know about buying Mutual Funds in India

There is a famous saying by Aristotle that ‘’ Well begun is half done’’. This very well applies to your investments also. Your investment beginning should be right.

Then with the periodic review, you can achieve your goals. Hence, to begin with, for mutual fund investments, it’s important to consider certain important things so that you can make rational decisions that can effectively lead you towards your financial goal.

Following are the ten important things to consider while buying mutual funds in India –

 

1) Net Asset Value

Net asset value of any mutual fund depicts its intrinsic value. Basically, it is a fund’s market value per unit. Based on net asset value, you will be allocated a number of fund units when buying mutual funds.

However, you cannot decide investments just on the basis of net asset value as it is not an indication of future performance. Let’s say you have chosen two funds with similar kinds of portfolios, there can be NAV differences.

A fund that has been around for a longer time would have a higher NAV and the recent one would have a lower NAV. Net asset value is an indicator of a fund’s performance on a daily basis.

While buying mutual funds, you need to consider other factors like returns and scheme performance along with NAV.

 

2) Historic performance

You can easily get the returns of mutual funds for the last five to ten years and also since inception online.

Though the historical performance of the fund is not an indicator of its future performance, you can analyze how the fund has been performing in a different market scenario since its inception.

You can compare two more similar funds’ performances for the selection of mutual funds. Basically, you should use the historical performance of the fund to analyze the performance trend and consistency.

 

3) Fund manager’s background

When you invest in mutual funds, your hard-earned money is going to be managed by fund managers on your behalf.

You must ensure you are giving your money in better and deserving hands for management. Hence, you can do some background checking of fund managers to get confidence in their expertise.

 

Want to know why you should invest in Mutual Funds? Here are the Top 10 Benefits of Investing in Mutual Funds

 

4) Investing style of the scheme

While buying a mutual fund, it is important to know whether a fund’s objective is matching with your objective and risk profile or not.

Every fund manager follows an investment style as required for the scheme’s objective. To make the right investment decision it is important to know the investing style of the scheme.

 

5) Asset allocation

In order to limit your losses in investment as per your risk profile, it is important to follow asset allocation.

Each mutual fund allocates your investment into various asset classes like equity, debt, and other securities based on the objective of the fund and the asset allocation that the fund manager would want to follow.

It is important for you to consider the asset allocation of the scheme that you are choosing to check whether that matches with your risk profile and defined asset allocation or not.

 

Take our Free Mutual Funds Course and get certified and start investing now!. Enroll Now!!

 

6) Assets under management

Asset under management or AUM in a mutual fund is the total cumulative investment value of that fund.

AUM is an important consideration in the mutual fund buying process. Asset under management gives you a broad picture of the success of a mutual fund.

Specifically, in case of debt funds, asset under management is an important fund selection parameter.

Your expense ratio in debt funds can come down when you invest in a mutual fund with larger assets under management which will also have an impact on returns.

 

7) Direct or Regular mutual funds

When it comes to buying mutual funds, you can choose between direct or regular variants of mutual fund schemes.

Direct fund refers to directly investing through asset management companies with paying any commission or distributor charges. Regular fund option is investing through distributors and advisors, expense ratio of which can be relatively more than that of direct funds.

You can choose the one suitable for you, depending on your market knowledge and how you want it to work.

 

Read our article on Best Mutual Funds to Invest in 2022

 

8) Growth or dividend option

When you select a mutual fund for investment, the portfolio of the fund will have many securities that may pay regular dividends.

When you choose a scheme with a growth option, the dividend paid by the underlying securities is reinvested by the fund manager.

When you opt for a dividend payout option, the amount of dividend will be paid out to your account.

You can also choose a dividend reinvestment option in which the fund manager utilises the dividend amount to buy more shares. You can select the suitable option depending on your liquidity/ regular income requirement.

 

9) Entry and Exit loads

Entry and exit loads are the amount charged at the time of buying and selling mutual fund units respectively.

Usually, the open-ended schemes may not have entry and exit loads. If you are buying closed ended funds, this would be applicable.

As entry or exit loads are a fraction of the net asset value, it will bring down your investment value. Hence, considering the entry and exit loads is an important thing while buying mutual funds.

 

10) Tax implication

Every mutual fund scheme can have different tax effects depending on the category it belongs to. There are also tax-saving mutual funds that allow you to avail tax benefit under Section 80C of the Income Tax Act, 1961.

Tax implication will have a huge impact on a fund’s return, hence it is an important thing about buying mutual funds.

Once you consider all the crucial parameters to buy mutual funds, your half work is done. You need to then do periodic reviews to arrive at the desired goal

 

Get the latest news on Mutual Funds at your fingertips. Get access to News, Videos, podcasts on Mutual Funds. Download Koppr App Now!

#7

What is SIP?

A systematic investment plan is a tool to invest in mutual fund schemes regularly in a disciplined manner. Learn more about SIP, its benefits, and strategies.

When it comes to investing in mutual funds, there are two ways in which you can start your investment – Lump Sum or systematic investment plan.

In the case of lump-sum investment, you invest your money in a scheme in one go. In the case of systematic investment plans, you make a fixed amount of investment at regular intervals for a particular period.

A systematic investment plan is the best way to cultivate a regular savings habit in you.

So, what is a systematic investment plan?

A systematic investment plan is a tool to invest in mutual fund schemes regularly in a disciplined manner.

A systematic investment plan allows you to invest a fixed amount of money every month on a date chosen by you into your preferred mutual fund scheme for a predefined period.

You can choose a convenient day for you to make payment at the time of buying mutual funds.

The monthly investment amount will be directly debited from your account on the date chosen through ECS (Electronic Clearing System) facility.

Typically for equity mutual fund investors, a systematic investment plan is an effective tool to save for long-term financial goals.

 

Here’s a FREE certification course on Mutual Funds

 

How does a systematic investment plan (SIP) work?

When you choose a systematic investment plan as a tool to invest in mutual funds, your fund savings will be done through periodic installments.

Every month when the investment amount is paid, fund units are allocated based on that day’s prevailing net asset value of the scheme.

Every installment of SIP is considered a fresh purchase. Many mutual fund houses allow monthly, fortnightly, and bi-monthly installments in SIP.

 

How can you customize your SIP investment?

There are various types of SIP options with which you can customize. Following are the types available –

 

1) Top-up SIP

In this, you can enhance your SIP contribution during regular intervals. For example, you have started a SIP of INR 1,000 into a mutual fund scheme when you just started your career.

Let’s say you have received a pay increment after your probationary period, you can increase your SIP amount to 1,500 under the top-up SIP facility.

 

2) Flexible SIP

Flexible SIP allows you to change the SIP amount based on your financial position. If you receive a bonus you can divert the amount to your SIP account.

In case of a cash crunch, you can even reduce your SIP amount.

 

3) Perpetual SIP

This is a systematic investment plan with no end date. If you have to stop them anytime, you need to give a written request.

This is an ideal option for investors who need continuity in investment into the scheme.

 

Want to manage your finances like a pro? Enroll in our Financial Planning Course and build your wealth. Join Now!

 

What are the benefits of systematic investment plans?

Investing in mutual funds through SIP mode is a smart choice for a variety of reasons. There are various benefits offered by systematic investment plans.

Following are the benefits of systematic investment plans –

 

1) Disciplined investment practice

Discipline is the essence of investing success. As a systematic investment plan allows you to invest regularly in periodic installments as per your monthly savings capacity, it inculcates a regular savings habit in you.

SIP is based on the principle of disciplined savings which helps you continuously save for your future goals without being impacted by market emotions.

Investing in a phased manner also helps you conveniently save on a regular basis.

 

2) Offers diversification

As investing through a systematic investment plan helps you buy units of mutual funds at different phases of the market, your risk in the investment gets diversified.

SIP helps you reach your long-term goals by earning a good amount of return at reduced risk.

 

3) Rupee cost averaging

As you make periodic investments through systematic investment plans, you would be buying mutual fund units at different costs each month.

You buy more units when the market falls and the NAV reduces. This brings down the average cost over the long term. Rupee cost averaging of systematic investment plans helps you take the advantage of market volatility.

 

Read our article on How to Choose the Best Mutual Fund Scheme for Myself According to my Asset Allocation and Risk Profile?

 

4) Power of compounding

Investing regularly in a disciplined manner through systematic investment plans over a longer period of time helps you magnify your investment by compounding effect. As the gains in your portfolio get reinvested and the compounding growth will lead to wealth maximization over the long run.

 

5) Convenience

Systematic investment plan routes of investing in mutual funds allow you to make even smaller amounts of savings on a regular basis.

As low as INR 500 is allowed to invest in systematic investment plans. With this convenience offered by SIP, you can start investing at an early age in your life.

The power of starting early helps you build significant wealth over the long term.

As a systematic investment plan does not strain your daily finances, helps you do disciplined savings, minimizes risk with diversification, and gives you an advantage of market volatility, it would be a smart choice for your long term mutual fund investments.

 

Do you have any questions related to Mutual Funds? Koppr Tribe is here to answer all your questions. Join our Tribe Now. Download the Koppr App

#8

All you need to know about MF Taxation

When you are investing, it is always important to consider the tax implications of the particular investment to understand how tax-efficient the returns could be.

Mutual funds are considered to be tax-efficient investment options. The tax treatment and tax implication vary depending on the category of mutual funds you are investing in.

You can take a detailed look at the taxation aspect of mutual funds below –

Taxation of a mutual fund based on the type of fund

 

1. Tax implications for Equity mutual funds

Equity mutual funds are the funds that invest primarily in the equities of companies. Any fund that invests more than 65% into equities is considered as an equity mutual fund for taxation purposes.

Tax treatment for equity-oriented hybrid funds that invest more than 65% into equities would be similar to that of equity funds.

If you make a profit by redeeming your equity mutual fund investments, it is referred to as capital gains which are subjected to income tax.

Following is the tax treatment for capital gains from equity mutual funds –

Short-term capital gains Gains from equity mutual funds are classified as short-term if the units sold are held for less than one year. Short-term capital gains are taxed at 15% plus cess.

Long-term capital gains Gains from equity mutual funds are classified as long-term if the units sold are held for one year or more.

Long-term capital gains have been reintroduced (which were tax-free till April 2018) in the unit budget 2018.

Presently, long-term capital gains on equity funds are taxed at 10% without indexation, only if the annual gain from equity exceeds INR 1 lakh.

 

Want to brush up on mutual funds again? The take a quick look at What are Mutual Funds? | How Does Mutual Fund Work? Blog

 

2. Tax implications for ELSS (Equity Linked Savings Schemes)

Equity-linked savings schemes (ELSS) are the type of equity mutual funds that come with taxation benefits. ELSS funds are designed to provide tax benefits as it comes with a three years lock-in period.

This means you cannot exit from the fund within three years of investment. But, you can avail tax deduction of up to INR 1.5 lakhs under Section 80C of the Income Tax, 1961.

However, the tax treatment of capital gains from ELSS schemes is similar to that of equity mutual funds.

 

3. Tax implications for debt mutual funds

Debt mutual funds are funds that invest predominantly into debt securities. Debt-oriented hybrid funds that allocate a significant proportion into debt securities are also treated similarly to that of debt funds for taxation purposes.

If you make a profit by redeeming your debt mutual fund investments, it is referred to as capital gains which are subjected to income tax.

 

Here’s a FREE certification course on Mutual Funds

 

Following is the tax treatment for capital gains from debt mutual funds –

 

a) Short-term capital gains

Gains from debt mutual funds are classified as short-term if the units sold are held for less than 36 months or three years. Short term capital gains from debt funds are taxed as per tax slab applicable to you based on your total taxable income.

 

b) Long-term capital gains

Gains from debt mutual funds are classified as long-term if the units sold are held for three years or more. Long-term capital gains on debt mutual funds are taxed at 10% without indexation and at 20% with indexation benefit.

Fund of funds, exchange-traded funds, and international mutual funds are also treated similarly to debt mutual funds for the purpose of taxation.

Tax implications are similar to that of debt funds for all of these funds.

 

Read our blog on What are the different types of Mutual Fund schemes in India?

 

4. Tax implications on mutual fund dividends

Dividends received on mutual fund investments are taxed differently depending on the type of fund. Dividends paid by the mutual funds are subjected to dividend distribution tax (DDT) which is paid by the mutual fund companies.

Mutual fund companies pay DDT of 11.648% on equity funds and 29.12% on debt mutual funds. Dividends were tax free in the hands of investors.

However, there is a major change in dividend distribution tax rule as introduced in the Union Budget 2020.

In the new tax regime, dividends on mutual funds will be taxed as per the tax slab applicable to you depending on your total taxable income.

Dividend on mutual funds needs to be now added to taxable income under the header ‘Income from other sources.

Taxation is an important aspect of your financial planning. Understanding the tax implication on mutual fund schemes that are planning to invest in can help you make effective investment decisions.

Understanding the mutual funds, their working, types, routes, and process to invest in along with the tax implications on each type of mutual fund can give you a general idea about the product as a whole.

When you are making an investment decision, understanding the product helps you make an informed and rational choice that would lead you towards your financial goal

 

Do you have any questions related to Mutual Funds? Koppr Tribe is here to answer all your questions. Join our Tribe Now. Download the Koppr App