Mutual funds are a tool that combines the capital of various investors to achieve mutual goal of investment. A mutual fund is managed by Asset management companies that have fund managers who managed all the funds and invest into the stocks, government bonds. The securities and Exchange Board of India(SEBI) manage and regulated Mutual funds in India.
Types of mutual funds
1. Asset Class
Equity funds :
Equity funds are focused on investments in the Equity markets such as stocks in various companies.This funds are mainly focused on the higher returns and consistent growth.Average risk reward ratio in this fund is higher than others.
Debt funds are focused on investments in government securities, government bonds and other safe investment tools. This are the fund mainly focused on the safe return for long term investors. This funds are return less compare to equity funds but it is safe return because mostly fund invest into the government securities so consider as a guaranteed return.
Hybrid or Balanced funds:
Hybrid or balanced funds are mainly divides investment into the equity market and debt market.Fund manager divides fund into the stocks and also in government bonds, gold schemes and etc. to achieve continuous and safe returns. This funds are combination of the Equity funds and Debt funds.The returns are average and more than fixed deposits to beat inflation rate.
Money market funds:
Money market funds are ideally for the huge amount of cash and someone wants to get return on the every month.The fund are identical for retirement or pension plans to get short term investment and regular and safe return.
2. Specialized mutual funds
There are different mutual funds in the different fund types in the India to diversified investment of investors.
The Index fund mainly invest into the top most stocks which are listed in Index like Nifty50 and BSE200 and invest those money into only that index stocks.That replicates based on the performance of index and investments are done similar to the index.
The Emerging fund mainly made for the companies which can grow the country better and mostly invest into the companies which depends on the country development like infrastructure, energy,power etc. This fund are higher risk than other fund.
The bluechip fund are the one of the popular and finest investment for the many investors.The bluechip funds are invest the money into the India’s top performing, good asset quality and less volatile stocks to gain continuous returns.
The sector funds are specific to invest in various sectors such as pharma, metal, automobile,IT sectors and also delivers good return based on the sector performance.The fund itself higher risk then other because in this fund investment are only invest in specific sectors and based on India’s demand and growth it varies.
Fund of funds:
The fund of funds are basically invest into the diversified funds in the market such as mid-cap,small-cap and large-cap funds to achieve good return.The fund of funds are similar to the hybrid fund that allocates few of the portion of fund into the specific funds by Asset management companies.
Foreign / International funds:
The foreign or international funds are invest the money into the form of ETF in the foreign stock markets such as NASDAQ. The fund manager purchased an ETF equivalent to the amount of investment and manage the ETF to provide sustainable growth. It is high volatile because it depends on the international market and varies on the international movement.It is ideal for the short term investor for good amount of return.
Market Neutral funds:
The market neutral funds seeks a profit in upward or downward market trending environments.The asset management companies need profit either in upward or downward market in live environment.
Real Estate funds:
The Real estate funds are invest money into the high quality real estates and it might takes high risk for the long term plan.
The gift funds are usually for the long term goals and invest money into the government bonds,gold and other government schemes. The gift funds are ideal for child plan, retirement plan.
Benefits of Mutual funds
There are various benefits and features from the mutual funds for the significant amount of wealth increase in a diversified portfolio that provides a good amount of return compare to savings account and fixed deposits.
Experts : The fund managers are experienced and SEBI certified analyst that can manage fund that protects against high volatile market and ensure that the fulfillment of individual returns goal.
Liquidity: The mutual funds are allotted the investment into the diversified portfolio that individual might not possible to invest in individual stocks. Fund manager ensures the risk and also liable to track individual stocks in portfolio performance and returns.
Higher returns: The mutual funds are made for sustainable and long term goals. Those who wants to profit in 3-4 months, then mutual fund is might be correct option. In mutual fund individual must invest for at least 3 years for sustainable returns and growth of money. On average index of Indian stock market grow 20-25% yearly basis. So on rough calculation any individual mutual fund can earn at least 10% return on yearly basis.So, on basis of that for the long term plans, it will always beneficial for the all Indian consumers.
Low cost for bulk purchases : The mutual funds are the best option for those who want to invest monthly income in terms of Systematic investment plan to mutual fund. Mutual fund diversified portfolio separators the asset into the various high growth organization and provide good amount of return.
Safety : All the mutual funds are under regulation of the securities and exchange board of India.
How to get higher return than expected return?
- The smarter way to invest is the do research on fundamental and various mutual fund ranking companies like CRISIL, Value Research and based on performance you can directly buy mutual fund through any online portal.
- Usually customer bought a mutual fund from agent and there is a little bit difference between the if you bought directly from mutual fund and buy from agent. Here I am provide statistics.
Let say someone buy HDFC long term plan from the direct AMC and from agent.
- If you buy from direct platform, they are showing 2 plans as below:
- HDFC Long term Direct plan
- HDFC Long term Regular plan
- If you buy from the agent, they probably showing only 1 plan that is commissioned plan for each agent as below:
- HDFC Long term regular plan.
So, What is difference between this, that easily anyone can identify from the site. There are average 1% interest difference between both plans. Customer can avail more 1% interest if buy direct mutual fund from the online portal.
How to check ratings of the Mutual funds?
Asset information :
Asset information consists various factor that each customer must checked like Asset size, Exit load, Expense ratio.
- Asset size : The total amount of investor invest into the particular mutual fund.
- Exit load: The percentage of interest taken by company as a charge if premature withdrawal request by customer.
- Expense ratio: Every company take percentage which consists of company cost, company service charge in terms of expense ratio.
- Note: Mutual fund return does not calculate expense ratio in their return.
CAGR ( Compound Annual Growth Rate) and Portfolio
- Each mutual fund provide CAGR that shows the compounding annual growth rate and portfolio disclousre in every month.
- CAGR is different from the actual return because it consists the compounding growth of the mutual fund and it counts on year-to-year basis.So, you will compare exact return in different years and calculate actual return of mutual fund.
- Portfolio: Any user can check portfolio and check allocation of share, bonds and identify performance of mutual fund.
- There are official companies such as CRISIL, Value Research that can track each mutual fund performance of last 3, 6 months and provide ratings from 1 to 5 stars. Based on that anyone can easily identify the performance of mutual fund.