Want to grow your money but not sure how? Mutual funds might be the answer. Think of a mutual fund like a big piggy bank. Lots of people put their money in this piggy bank. A smart person called a fund manager takes care of all this money. They use it to buy different things that can make more money, like parts of companies or loans. This is good because it’s safer than trying to do it all by yourself. Your money can grow, and you don’t have to worry about making tough choices. It’s an easy way to save for your future and maybe make extra money too.
What is a mutual fund and how does it work?
A mutual fund is formed by the money collected from many people or investors. A person called a fund manager takes care of the money in the fund. You can invest a fixed amount in mutual funds through SIP (Systematic Investment Plan). SIP is a type of plan through which anyone can invest in a mutual fund. SIP is helpful in increasing investment. It requires investing on a regular basis. You can start investing in SIP with as little as 100 rupees.
Understand your risk-bearing capacity (Risk Tolerance): Every fund has different risks. Therefore, before investing, you should understand how much risk you can take.
What is a Mutual Fund? How to select Best mutual funds in 2024
Different types of Mutual Funds :
| Category | Example | Benefits | Features |
| Equity Mutual Funds | SBI Bluechip Fund HDFC Equity Fund | Possibility of high returns, good for long term | – Invest in stock market – High risk – Suitable for long-term investment |
| Debt Mutual Funds | ICICI Prudential Short Term Fund HDFC Short Term Debt Fund | Safe and stable returns, capital preservation | – Invest in bonds and government securities – Low risk – Liquidity |
| Hybrid Mutual Funds | HDFC Balanced Advantage Fund ICICI Prudential Equity & Debt Fund | Balanced risk, diversification | – Invest in both equity and debt – Medium risk – Regular income |
| Liquid Mutual Funds | Aditya Birla Sun Life Liquid Fund SBI Liquid Fund | High liquidity, safe investment | – Highly liquid – Suitable for short term – Low risk |
| Tax Saving (ELSS) Mutual Funds | Axis Long Term Equity Fund Aditya Birla Sun Life Tax Relief 96 | Tax savings, possibility of high returns | – 3-year lock-in period – Invest in equity – Tax exemption (80C) |
| Gold Mutual Funds | HDFC Gold Fund ICICI Prudential Regular Gold Savings Fund | Investment in gold, hedge against inflation | – Returns based on gold prices – Safe investment |
| Index Mutual Funds | UTI Nifty Index Fund HDFC Index Fund-NIFTY 50 Plan | Returns in line with the market, low cost | – Tracks Nifty or Sensex – Passive management – Low fees |
How to buy mutual funds?
Step 1 – Make an investment plan: After knowing what a mutual fund is, the first step is to make an investment plan. You need to decide how long you want to invest and what your goal is.
Step 2 – Select a mutual fund: Choose a good mutual fund based on your goal. You will have options such as equity funds, debt funds, and hybrid funds.
Step 3 – Complete KYC process: Before investing, you need to complete the KYC (Know Your Customer) process. This verifies your identity.
Step 4 – Invest: You can invest in mutual funds from your bank account or online.
Step 5 – Monitor the investment: After investing, you need to keep monitoring. Watch the fund’s progress and make changes to the investment as needed.
How to select Best mutual funds ?
Choosing a good mutual fund is not a big deal but it is also necessary because it will be beneficial for you for a long time. You can choose the best fund for investment with the help of the guidance given below.
Fund History
The fund’s history shows the performance record of the fund over time. For mutual funds launched recently, there is no track record of open-ended funds. This makes it difficult to estimate their returns and performance in market cycles.
Goal
When investing in Mutual Funds, you need to keep in mind your goal of why you want to invest. How long are you planning to invest and what returns are you expecting?
Fund Manager’s Performance
It is important to know what the fund manager’s track record is like. Investors should pay attention to the fund’s performance during market ups and downs. You can also look at the performance of the plans the fund manager has managed.
Liquidity
Investors should know when they might need to invest. If this need is coming soon, equity mutual funds won’t be right. Because it may not give as much return as expected. If you want to add money for a short time, then choosing a liquid fund would be right.
How to invest in Mutual fund ?
Here are some mobile applications that can help you select mutual funds according to your personal needs:
Groww: This is a popular mobile application that provides investors with information about various mutual funds and helps them select the right fund according to their financial goals and needs.
ETMoney: This is also a popular investment application that provides investors with relevant investment news, mutual fund information, and investment advice.
Paytm Money: This is also a popular investment application that provides investors with the facility to invest in mutual funds easily.
Zerodha Coin: This is another major investment application that provides investors with challenging investment options for various mutual funds.
These applications can help investors select the right investment option according to their personal needs by providing information about various mutual funds, the investment process, and investment advice.
Mutual funds are regulated by the Security Exchange Board of India (SEBI) and their NAV (Net Asset Value) or price is monitored every day. Even their portfolio is announced every month and this information is also given to people.
What are charges in a Mutual Funds?
Now that you know what a mutual fund is, investment cost can be a significant factor in your net return. It’s necessary to understand how funds assess fees and expenses. These fall into three broad categories:
Expense Ratio:
This is the annual fee charged by the fund company to cover its operating expenses, including management fees, marketing costs, and administrative expenses.
Transaction Fees:
Depending on your investment platform, there may be fees associated with buying or selling mutual fund units.
Exit Load:
This is a fee charged by some funds if you cash out your units within a specific period from the purchase date.
What are the Mutual Funds that have given the highest Return in the last one year
Keep in mind that the position of funds keeps changing. Before investing, find out about the most beneficial funds at that time. Below we have given information about the Funds that have given the highest Return in the last one year from 2024.
| Fund Name | 6 Months Return | 1 Year Return |
|---|---|---|
| Invesco India PSU Equity Fund (G) | 25.6% | 70.8% |
| Motilal Oswal Midcap Fund (G) | 42.2% | 68.8% |
| DSP T.I.G.E.R. Fund (G) | 38.5% | 61.9% |
| Motilal Oswal Large and Midcap Fund (G) | 41.2% | 59.5% |
| JM Flexicap Fund (G) | 32.4% | 58.1% |
Advantages and disadvantages of Mutual Funds
Advantages :
Diversification: Mutual funds spread your investment across various companies and assets, which reduces risk.
Professional Management: Fund managers are knowledgeable about the stock market and they handle your fund’s investment.
Low Investment: You can start investing in mutual funds with a small amount.
Tax Benefits: On investing in some mutual funds, you get tax deduction benefits under the Income Tax Act.
Disadvantages :
Fees: Mutual funds have various types of fees, such as management fees, entry fees, exit fees, etc. These fees can reduce your returns.
Risk: No investment is free from risk. Mutual funds are also risky. If the market falls, the value of your fund may also fall.
Less Control: When you invest in mutual funds, you have less control over how your money is invested. Fund managers decide in which company or sector your money will be invested.
No Immediate Withdrawal: Some mutual funds have a lock-in period. During the time, you cannot withdraw your money.
Conclusion
Mutual funds are the best for investing. Because there are many benefits from this. If you invest in the right fund, you will get good benefits from it. You should think about your tomorrow before investing. Definitely think about your financial goals and risk-taking capacity. Today you got complete information about how to invest in funds here. You also learned about its advantages and disadvantages. We hope that this information will help you become a good investor.
Frequently Asked Questions (FAQs)
What is a Mutual fund?
A mutual fund is a financial resource. In which many investors invest. Companies allocate funds in many types of securities. AMCs manage funds. AMCs invest in shares, bonds, stocks and other assets of companies.
What is the benefit of mutual funds?
You can start investing in funds with a minimum amount of money. You can start with 100 rupees and invest as much as you want. New investors don’t know where and how to invest. So this is a good advantage that experienced professionals manage them.
What is the disadvantage of mutual funds?
Some funds may charge for entry or exit load or both. Funds do not guarantee returns. Therefore, you should know about the fund before investing. If the manager is misusing his authority, then turnover and window dressing can happen. When it comes to capital gains payment in funds, then investors cannot do anything about it. They don’t have any other option.
When can you withdraw money from mutual funds?
Whenever you feel that your fund’s performance is not going well, then you can withdraw money. Companies often keep changing the investment plan. It is possible that this change is not fulfilling the goal of your investment. In such a case, money can be withdrawn from the fund.
Where and how to buy mutual funds?
Along with buying funds from AMC or agent, you can also buy from online fund house partner portal. If KYC is completed, you can invest in offline or online. If you don’t want to do it online, you can go to your nearest branch and invest in the fund.
How much return do you get in mutual funds?
Just as a bank pays an interest rate on savings or FD. Similarly, the company pays a fixed interest rate on the bonds it has issued, and when buy these bonds, they have income in the form of interest. The value of bonds is opposite to the interest rate. For example, if the value of the bond is high, the Interest Rate will be low