Mutual Funds: What Is?, Definition, Resources & How to Start Mutual Funds Investments!!

A Mutual Fund can help you to become a millionaire in the future. It is a type of investment made for a particular purpose such as money market, stocks, bonds and other securities often known as portfolios. The money is collected from different investors, also known as shareholders as a contribution to the work and profit or loss from the output is proportionally distributed among them. They may be individuals, companies or organizations.

This is considered as a traditional fast-moving vehicle to multiply wealth in a short period of time. First introduced in 1890, the Mutual Fund assets reached up to $40.4 trillion USD worldwide towards the end of 2016 as revealed by Investment Company Institute. The United States is the largest company in the world in terms of mutual fund industries with assets up to $18.9 trillion. Similarly, countries such as Luxembourg, Ireland, Germany, France, Australia, UK, Japan, China, and Brazil are other notable names on the list. India is still developing in this field.

Now, if you want to get involved in mutual funds and learn the secrets behind becoming a millionaire, just keep reading this entire page. Also, I should warn you that investment is a risk. The chances of making or losing money are equal. And if you are not willing to take any risks, this is not made for you.

Advantages & Disadvantages of Mutual Fund-

It has both advantages and disadvantages as compared to the direct investment made in personal or individual securities. The advantages of a mutual fund are:

Advantage-

  • A mutual fund allows different varieties of investments for all large and small scale shareholders that decreases the risks of facing loss.
  • The investment is supervised by fund managers that are highly professionals in this field. The research, analyze, buy or sell stocks to beat the market.
  • It is transparent and easy to invest in mutual funds once you have determined the objectives.
  • Investing in more than two stocks within one portfolio is possible in a mutual fund.
  • It is less expensive to invest in a mutual fund with fair pricing as compared to direct investments.
  • It is suitable and versatile for every type of investors.

Disadvantage-

With that, the following are a few disadvantages of mutual fund:

  • Your manager may betray and abuse his powers to perform unauthorized and unnecessary trades to fix the books.
  • The income is relatively less predictable and not guaranteed.
  • A mutual fund has high government taxes liable and 12b-1 hidden fees.
  • The government does not pay compensation against losses. There is no insurance for a mutual fund.

What Are The Different Types Of Mutual Fund?-

Following are the different types of mutual fund:

  1. Money Market Fund: This type of mutual fund invests in short-term stable income securities also known as money market instruments. They are safer to deposit solely in cash but does not guarantee anything.
  2. Fixed Income Fund: Depending upon the amount of pay, these types of fund pay a return on a regularly scheduled basis. For example, government bonds, high yield corporate bonds and investment-grade bonds.
  3. Equity Fund: This primarily invests in stocks according to company size, portfolio and geography. They grow faster but with high risk.
  4. Balanced Fund: It is based upon equity and fixed income fund to achieve higher income, safety and capital.
  5. Index Fund: It is designed to track the functioning of a specified index. They may clone indexes with special characteristics or broad market index.
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Similarly, there are other categories of a mutual fund such as speciality fund, fun-of-funds, income fund, bond fund, a global or international fund, etc. Besides that, in closed-ended MF, money cannot be cashed out before maturity and on open-ended MF, you can cash out money anytime.

Note: Index is the calculation of a part of the stock market.

Mutual Funds What Is Definition Resources

How to Start Mutual Fund?

Mutual funds are controlled by AMFI (Association of Mutual Funds in India). In order to start investing in MF, you need to find an AMC (Asset Management Company) and fulfil Know Your Customer (KYC) requirements. You can read the KYC rules on this link. When you have done submit an ID proof, address and photograph electronically through ekyc website. You will also need to prove your physical existence through the IPV (In-Person Verification) method. Plus you will need to research on the agency, its reputation, history, type and learn how to save tax.

Now there are different agencies and they have their own system of implementing MF. But after you have submitted your basic information as mentioned earlier including date of birth, real address and mobile number, it is compulsory to upload necessary documents including PAN (Permanent Account Number). All this information should be submitted through their online registrar platform or by visiting their office. They will also video call you for IPV through any webcam. Alternatively, if you submit AADHAR Card document information along with OTP (One Time Password), won’t require any IPV verification.

As a final step, you will be provided with a link to their official website where you can register for a new account. It will present you with a simple form to get your details about making online transactions. It may ask you for your bank details. So always do the homework and be prepared. The agency will then take some time to verify you and soon they will inform you via call or email if you are ready to invest.

Please keep in mind that you will need to perform all these formalities yourself and if you try to cheat or do some tricks, you might get in serious legal troubles.

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Some of the top mutual funds in India are DSPBR Opportunities Fund, IDFC Infrastructure, Birla Sunlife India, Tata India tax savings fund, Motilal Oswal Multicap, Kotak Nifty ETF, ICICI Prudential Nifty Index Fund, Reliance Monthly Income Plane and many more.

Steps To Invest In Mutual Fund 

  1. Go through website https://cleartax.in/save
  2. Now Signup for an account
  3. Now Complete your KYC process if you have not already done so. With ClearTax, you can verify your KYC within five minutes. 
  4. now Choose the most suitable fund among our handpicked mutual fund plans.
  5. Duly fill the online application form by providing all the details.
  6. Choose the preferred mode of investment (lumpsum or SIP)
  7. If you choose SIP, then select the frequency and ticket size of your SIP.
  8. Link your bank account and transfer the amount.
  9. You will receive the details of your investment, such as folio number through an email or SMS.

Why Should You Invest In Mutual Fund?

Investing in Mutual Fund provides several benefits for the Investors. Flexibility and Expert management of Money Make the Mutual Funds lucrative investment option.

  • its Systematic Investment Plan
  • Goal-Based Funds
  • Flexibility
  • Liquidity
  • Diversification
  • Switch Fund Option
  • No Lock-in Period
  • Low Cost
  • Investment Handled by Experts
  • Seamless Process
  • Regulated
  • Ease of Tracking

Mutual Fund Calculator

The Mutual Fund Calculator provides the Investment Value at maturity by calculating fund returns according to your investment horizon. You can adjust the variables of the calculator like SIP/lump sum, amount of investment, frequency of SIP, expected rate of return and duration of SIP.

Frequently Asked Questions (FAQs)

In Short, What is a Mutual Fund?

 A mutual fund is formed when funds accumulated by various investors is spent on purchasing company stocks, stocks, or bonds. Shared by tens of thousands of investors, mutual funds investments are collectively handled by a professional fund manager to deserve the greatest possible yields. This is how mutual funds work, not only in India however, any place on earth.

Are Mutual Funds secure?

Yes, mutual fund investments are absolutely safe as all finance plans and finance houses are under the hawk eye of the Securities and Exchange Board of India (SEBI), the Association of Mutual Funds in India (AMFI) and the Reserve Bank of India (RBI).

Who can invest in Mutual Funds?

All people who have completed their KYC process are entitled to invest in mutual funds. However, some fund houses don’t accept investments from NRIs living in the United States and Canada because of this FACTA regulations.

What is SIP?

Systematic Investment Plan or SIP is a choice supplied by finance houses that allow investors to invest a small sum on a regular basis. The frequency of your SIP could be weekly, monthly, or quarterly, in accordance with your relaxation.

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Is SIP better than a lump sum? 

It depends upon the individuals and the market scenario. If you’re risk-averse, then investing in via SIP is advisable. When the markets have dropped record levels, then a lump sum is advisable. Again, you need to assess your risk profile and prerequisites.

What is the time period considered for the purpose of income tax?

Income Tax is imposed on the yearly income of taxpayers. It’s levied based on the income you earn in each fiscal year (1 April of the year till 31 March of the following year) and not the calendar year. The former year is a time where an individual must pay tax. Assessment year is a 12-month interval following the prior year, through which a taxpayer files his/her ITR.

What is CRISIL MF ranking? 

CRISIL is an analytical company, which provides positions, analysis, and advisory services. MF rankings provided by CRISIL rely on global parameters. The positions are very crucial for investors when they are choosing a specific scheme.

The best way to Pick a suitable mutual fund?

A right fund program can’t be chosen only by considering the last performance of this fund and fund manager. To choose the best mutual fund, you have to check if the fund’s investment goal is in accordance with your objectives.

How do you redeem your mutual fund units?

You’ll be able to redeem MF units anytime. You need to notify your fund house or the agent. Your money will be deposited into a bank account within 3- 7 working days, post-redemption. 

Do mutual funds invest only in stocks?

No, mutual funds don’t invest only in stocks. Simply equity funds invest in stocks, while debt capital and liquid funds hardly invest in stocks. In fact, there are some debt funds that don’t invest in stocks at all.

What’s an exit load? 

It’s the penalty charged by the fund home if you aren’t able to remain invested over a specific time frame. Most mutual funds are open-ended and include no exit load. Investors should read the fund offer carefully prior to investing.

What is an Expense Ratio

The expense ratio is the fee charged by the fund houses to manage the investments of the investors. It is always less than 2.5percent of the total invested by the investors.

The Wrap-Up

Now that you have learnt so much about MF, is there any additional doubt that needs to be cleared in your mind? Or maybe you might want to share your mutual fund experience. Either way, let me know what you’ve got in your brain. Just use the comment box below. Also, be sure to read other useful information on our website.