Investing through mutual funds has become the most popular way of savings now-a-days. Mutual
fund is a professionally managed scheme wherein they pool money from different numerous
investors to be invested in bonds, stocks & other securities. Your investments done through
MFs are safe as all the mutual fund operators are registered with SEBI & work within
framework created to protect the investors.
Mutual funds have become a very popular investment option in India and this trend still
continues with new funds and schemes being introduced in the market regularly. Some of the
key reasons why people invest in mutual funds are outlined below.
Professional management: Mutual funds are managed by fund managers of asset management
companies. These managers employ their investment expertise to minimise risks and maximise
returns to investors. Individuals often find it difficult to decide which assets to invest
their savings in due to lack of financial knowledge.
Focused investments: All mutual funds feature schemes clearly specifying which assets are
targeted for investments, allowing investors to direct savings to different asset classes in
an organised and focused manner. It also gives investors access to certain securities
otherwise unavailable to them e.g. foreign sectors or foreign securities which cannot be
invested in by individuals.
Choice of assets: There are various types of funds e.g. equity funds, debt funds, money
market funds, hybrid funds, sector funds, regional funds, fund of funds, index funds etc.
giving investors a wide range of choice.
Easy purchase and redemption: Fund units can be easily bought and sold at prevailing unit
prices or NAVs. Unless there’s a lock-in period, it is easy for investors to buy into or out
of a fund thereby providing liquidity.
Tax benefits: A number of funds/schemes have been designed to act as tax-saving instruments
e.g. ELSS or equity linked saving schemes. Investments made in these schemes qualify for
income tax deductions.
SIP options: Systematic Investment Plans let individuals invest small amounts on a regular
basis to avail benefits of rupee cost averaging. It’s an alternative to those who cannot
invest lump sum amounts thereby appealing to investors across income levels. Mutual funds
accept initial investments as low as Rs.500.
Flexibility through fund switching: Many funds offer investors flexibility by letting investors
switch between schemes or between funds to avail better returns
There are some terms unique to mutual funds which investors should be aware about.
Fund Units or Shares - Investments in a mutual fund are made by buying units or shares of a
particular fund. The more the units bought the higher the investment.
Net Asset Value - This is the unit price or price per share of the fund. The NAV of a
fund changes depending on the fund’s performance. Units are purchased or sold/redeemed
at the prevailing NAV or unit price at the time of purchase/sale.
Lock-in Period - Certain funds stipulate a period during which units cannot be sold i.e.
investors cannot liquidate their investment during this period. If allowed, it is
subject to a penalty or loss of benefits.
Offer document - This is a formal document that outlines the basic features of the fund.
The objective of the fund and the asset classes that the fund will invest in is
mentioned in the offer document. It also contains terms and conditions of the fund and
other details such as who will manage the fund, risk factors, the fund’s performance
history and other financials. Investors should read the offer document carefully before
investing in a fund.
Assets Under Management (AUM): This refers to the total market value of funds being managed
by a mutual fund company.
New Fund Offer (NFO): New fund offers are new funds/schemes launched in the market by an
AMC. Investors can buy units of these new funds at the offer price, which is usually very
low. Subsequent purchases in these funds will have to be made at prevailing NAVs.
Redemption: This is when fund units are sold/transferred/cancelled.
Mutual funds are open to a wide range of investors including Resident Individuals, NRIs,
PIOs, HUFs, Companies, Partnership Firms, Trusts, Cooperative Societies, Banking and
Non-Banking Financial Institutions, registered FIIs, QFIs etc. This is not an exhaustive
list but represents the more commonly known types of investors in mutual funds in India.
Mutual funds are made easily accessible to investors. Applications can be made in the
Agents: These are professionals who are trained to reach out to customers to provide
information on the various funds provided by a company. They help process
applications and deal with related issues e.g. redemption, cancellation, transfer of
units and other dealings with the company. Agent commissions, which normally range
up to 6%, are added on to the purchase price of fund units.
Direct: Customers can invest directly by visiting the nearest office of the mutual fund
company or by going online. Forms can be availed and submitted at the appropriate office or
downloaded from the company website and submitted at the office. Alternatively, applications
can be processed online. Applying for Mutual Funds and Online transactions are becoming
increasingly popular for many reasons, as mentioned below.
Convenience: Schemes can be applied from the comfort of one’s own office or home.
Easy comparison: Besides company websites, there are a number of online financial
services providers which act as single-point portals for viewing and comparing funds
and schemes from multiple companies.
Independence: All required information, including brochures and other material, are provided
online for making informed, independent decisions.
There are many different types of mutual funds categorised based on structure, asset class
and investment objective
Equity Funds: These are funds that invest in equity stocks/shares of companies. These are
considered high-risk funds but also tend to provide high returns.
Debt Funds: These are funds that invest in debt instruments e.g. company debentures,
government bonds and other fixed income assets. They are considered safe investments
and provide fixed returns.
Balanced or Hybrid Funds: These are funds that invest in a mix of asset classes. In some
cases, the proportion of equity is higher than debt while in others it is the other way
round. Risk and returns are balanced out this way.
Money Market Funds: These are funds that invest in liquid instruments e.g. T-Bills,
CPs etc. They are considered safe investments for those looking to park surplus
funds for immediate but moderate returns.
Balanced or Hybrid Funds: These are funds that invest in a mix of asset classes. In
some cases, the proportion of equity is higher than debt while in others it is the
other way round. Risk and returns are balanced out this way.
Sector Funds: These are funds that invest in a particular sector of the market e.g.
Infrastructure funds invest only in those instruments or companies that relate to the
infrastructure sector. Returns are tied to the performance of the chosen sector. The risk
involved in these schemes depends on the nature of the sector.
Index Funds: These are funds that invest in instruments that represent a particular
index on an exchange so as to mirror the movement and returns of the index e.g.
buying shares representative of the BSE Sensex.
Tax-Saving Funds: These are funds that invest primarily in equity shares. Investments made
in these funds qualify for deductions under the Income Tax Act. They are considered high on
risk but also offer high returns if the fund performs well.
Open-Ended Funds: These are funds in which units are open for purchase or redemption
through the year. All purchases/redemption of these fund units are done at
prevailing NAVs. These funds are preferred since they offer liquidity to investors.
Close-Ended Funds: These are funds in which units can be purchased only during the initial
offer period. Units can be redeemed at a specified maturity date. To provide for liquidity,
these schemes are often listed for trade on a stock exchange.
Growth funds: Under these schemes, money is invested primarily in equity stocks with the purpose
of providing capital appreciation. They are considered to be risky funds ideal for investors
with a long-term investment timeline.
Liquid funds: Under these schemes, money is invested primarily in short-term or very short-term
instruments e.g. T-Bills, CPs etc. with the purpose of providing liquidity. They are considered
to be low on risk with moderate returns and are ideal for investors with short-term investment
timelines. Mutual funds offer investors many benefits. However, the onus of making a sound
investment lies on the investor. Funds should be chosen keeping in mind investment objective,
liquidity requirements. investment timelines and affordability.
Pioneers in the Indian Mutual Fund industry, we at UTI MF have always aimed at being a
trusted, efficient and innovative wealth creators. This is made possible by an immensely
strong team of professionals who never fail to lose sight of the objectives of our
investors. After all, it is the investor who is at the heart everything we stand for.
Birla Sun Life Asset Management Company Ltd. (BSLAMC), the investment managers of Birla Sun
Life Mutual Fund, is a joint venture between the Aditya Birla Group and the Sun Life
Financial Services Inc. of Canada.
SBI Mutual Fund draws strength from Indias premier and largest bank, the State Bank of
India. Set up on July 1, 1955, the State Bank of India is the largest banking operation in
the country. SBI entered into a Memorandum of Understanding with Société Générale Asset
Management (SGAM), which offers retail investors, corporate clients and institutional
investors a wide range of investment products.
L&T Mutual Fund is one of the premier mutual funds in India that serves the investment needs
of investors through a suite of acclaimed mutual fund schemes. With world class investment
management practices and an equally competent fund management team, L&T Mutual Fund helps
its investors reach their financial goals.
Axis Mutual Fund launched its first scheme in October 2009- a challenging period on any
account not just for the Indian but the global investor too. Despite this Axis Mutual Fund
in less than three years has got off to a good start. Some numbers that bear this out
LIC Mutual Fund was set up by the Life Insurance Corporation of India on 20th April 1989 to
engage in the business of Mutual Fund and in order to achieve this objective to engage in
any other activity or business permitted or authorized. The Fund continues to work towards
realizing this objective. The Fund was governed by a Board of Trustees earlier and is
governed with effect from 8th April 2003 by LIC Mutual Fund Trustee Company Pvt.
Ltd.(Trustee Company) on its incorporation under The Companies Act, 1956.
Mutual funds have been known to provide good returns on medium and long-term investments
since investors can diversify risk to enhance overall returns.
Easy to track: It can be hard for investors to regularly review their investment portfolios.
Mutual funds provide clear statements of all investments which makes it easy for investors
to keep a tab on. Hybrid or balanced funds provide investors an avenue to access both equity
and debt funds at one go in a proportion of choice.