MUTUAL FUND

Mutual fund- It is an investment vehicle where many investors pool their money to earn returns on their capital over a period. This corpus of funds is managed by an investment professional known as a fund manager.

Types of mutual funds based on asset class:

?Debt funds- Debt funds also known as fixed-income funds invest in assets like government securities and corporate bonds. These funds aim to offer reasonable returns to the investor and are considered relatively less risky

?Equity Funds- Equity funds invest your money in stocks. Capital appreciation is an important objective for these funds. But since the returns on equity funds are linked to the market movements of stocks, these funds have a higher degree of risk. They are a good choice if you want to invest for long-term goals such as retirement planning or buying a house as the level of risk comes down over time.

Hybrid funds- Hybrid funds invest in a mix of both equity and fixed-income securities. Based on the allocation between equity and debt, hybrid funds are further classified into various sub-categories.

?Types of mutual funds based on structure:

Open-ended mutual funds are mutual funds where an investor can invest on any business day. These funds are bought and sold at their Net Asset Value. They are highly liquid because you can redeem your units from the fund on any business day at your convenience.

?Close-ended mutual funds come with a pre-defined maturity period. Investors can invest in the fund only when it is launched and can withdraw their money from the fund only at the time of maturity. These funds are listed just like shares in the stock market. However, they are not very liquid because trading volumes are very less.

?Types of mutual funds based on investment objectives:

Growth funds- The main objective of growth funds is capital appreciation. These funds put a significant portion of the money in stocks. These funds can be relatively riskier due to high exposure to equity and hence it is good to invest in them for the long term.

?Income funds- Income funds try to provide investors with a stable income. These are debt funds that invest mostly in bonds, government securities and certificates of deposits etc. They are suitable for different-term goals and for investors with a lower-risk appetite.

?Liquid funds- Liquid funds put money in short-term money market instruments like treasury bills, Certificates of Deposits(CDs), term deposits, commercial papers and so on. It helps to park your surplus money for a few days to a few months or create an emergency fund.

Tax saving funds- it offers you tax benefits under Section 80C of the Income Tax Act. When you invest in these funds, you can claim deductions up to Rs 1.5 lakh each year. Equity Linked Saving Scheme (ELSS) are an example of tax saving funds.

What is Systematic Investment Plan (SIP)?

One of the best features of investing in mutual funds is that you don’t need a large amount of money to start investing. Most fund houses in the country allow investors to begin investing with as little as Rs.500 per month through Systematic Investment Plans (SIPs). Now, this might seem like a tiny amount to begin your investment journey, but when you invest consistently over a considerable period, you can achieve a substantial sum.

SIP is a method of investing in mutual funds where you invest a specific amount at fixed intervals. This way, you can avoid timing the market and increase your wealth steadily.

How to invest in mutual funds:

?Sign up for a mutual fund account

Complete your KYC formalities

??Enter the necessary details as required

?Identify the funds you wish to invest based on your financial goals.

Select the fund and transfer the required amount

You can also create a standing instruction with your bank in case you invest in a SIP each month.

Conclusion- Investing in mutual funds is one of the simplest ways to achieve your financial goals on time. But before you invest, take an adequate amount of time to go through the different fund options. Don’t invest in a fund because your colleague or friend has invested in it. Identify your goals and invest accordingly. If required, you can approach a financial advisor to help you make the right investment decision and plan your financial journey