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Fact checked byA member of the leadership team with over 17 years spent working at the intersection of Investment Analysis, Personal Finance, and Technology. Hands-on experience across multiple functions including Index Construction, Index Maintenance, Asset Allocation, Portfolio Construction, Managing a team of Digital Relationship Managers, etc
Mutual funds are among the best investment options in the country. To help our readers, we have created this complete guide on mutual fund investment in India by Scripbox.
A mutual fund is one of the best investment options for everybody. It is a corpus of money pooled from several investors professionally managed by a trust called asset management company (AMC). An AMC is also known as a mutual fund house.
The fund house has experts, known as fund managers, who are responsible for investing the pooled money.
This pooled money is then invested in various assets like equities, debt, corporate bonds, hybrid instruments, money market instruments like CP, CD, and T-bills to generate returns.
The systematic investment plan, popular as SIP, is one of the methods to invest in mutual funds. The mutual fund is the actual investment vehicle which pools the corpus of money from various investors and invests them in various asset classes.
To know more about the difference between SIP and Mutual Fund you can go through the article Difference between SIP and Mutual Fund.
There are several benefits of investing money in mutual funds. Some of them are…
You can also read all the benefits and advantages of mutual funds in details.
In India, you have several types of mutual fund schemes suitable for all types of investment requirements be it for HNIs or retail investors, for long term or short term investment horizon.
Due to time constraints and lack of expertise, you may find it very difficult to invest in financial instruments like T-Bills, G-Secs, NCDs, CP, CDs or Hybrid instruments.
Mutual funds invest pooled money in all types of financial instruments and the types of mutual funds are known by the underlying class of instruments in which the major portion of the investment is made.
Here are some of the types of mutual funds available in India.
You can start investing in mutual funds in two ways, lump sum, and SIP.
In lump sum investment, you make a single payment to purchase units of mutual funds. The investment is best suited in case you already have surplus cash to invest.
In a systematic investment plan (SIP), you have the flexibility to split your purchase into smaller amounts, usually in the form of monthly investments. The method is especially suitable for salaried professionals.
For example, using SIP you can start purchasing 1000 units of the mutual fund every month. In fact, you can start using SIP with as low as Rs. 1000 per month. SIP also gives you the flexibility to invest on fortnightly, monthly and quarterly periods.
| Basis | Mutual Funds | Stocks |
| Ownership | Shares in Fund | Shares in company |
| Managed by | Fund Manager | Investor |
| Value calculation | Net Asset Value | Price per share |
| Risk | High | High |
| Investment tracking | By the investment team at AMC | Investor |
| Expertise required | NIL, as the fund manager, exercises his expertise to find stocks. | Investor |
| Stock selection | No, because the fund manager does everything on your behalf | Investor |
| Diversified portfolio | Yes | Need to buy several shares to create a diversified portfolio |
| Expenses | Yes, need to pay fees called expense ratio | No, but need to pay STT |
| Tax deduction | Only in ELSS under section 80C | No |
| Basis | Tax Saving Mutual Funds or ELSS | Public Provident Fund (PPF) |
| Returns | 12% & more | Declared by Govt. every year presently 7.9% |
| Tax benefit | Yes, a deduction up to Rs 1.5 Lakh under section 80C | Yes, a deduction up to Rs 1.5 Lakh under section 80C |
| Taxation of returns | Gains above Rs. 1 Lakh are taxable @ 10% | Tax-Free |
| Risk | Market risk | Govt. backed |
| Lock-in period | 3 years | 15 Years |
| Backing | Mutual fund house | Government |
| Partial withdrawal | No | After the fifth year |
| Time period of investment | No upper time limit | 15 years, can be extended by another 5 years |
| Basis | ULIPs | Mutual Fund |
| Product Type | Insurance + Investment | Investment |
| Tax savings | Yes, a deduction of up to Rs. 1.5 Lakh eligible for tax savings | Only ELSS provides tax benefits |
| Returns | 10%-12% | 12% |
| Lock-in Period | 5 years | For ELSS 3 years. In case of other mutual funds, there is no lock-in period |
| Life cover | Yes, you get sum assured in case of death | NO, you need to buy it separately |
| Basis | ETF | Mutual Fund |
| Composition | As per the underlying index | Depends on the investment objective |
| Product | Pooled investment product | Pooled investment product |
| Trading | Can be like stocks | Not traded |
| Management | Passively managed by the fund manager | Depending on the type can be actively managed by the fund manager |
| Fees & Expenses | Low | Varies with type |
| Lock-in Period | No | Close-ended mutual fund and ELSS have a lock-in period |
The primary objective of tax saving mutual funds or Equity Linked Savings Schemes is saving of taxes, and generating higher returns with a lower lock-in period.
Investment in tax saving mutual funds or ELSS can be done in the same manner as investing in mutual funds by purchasing units in a lump sum or through regular systematic investment plan (SIP).
You can purchase the best tax saving ELSS mutual funds directly from the mutual fund house, your broker, online mutual fund investment platform, from registrars like Karvy and CAMS or through AMFI registered agents.
You can purchase best tax saving ELSS mutual funds directly from the mutual fund house
Liquid funds have a major holding in in very short duration financial instruments like T-bills, fixed deposits, commercial papers (CPs) and certificate of deposits (CDs).
Investors with a short investment horizon of less than a year and those looking for an alternative to savings account and deposits can invest in liquid mutual funds.
You can find out the best liquid mutual funds in India to start investing.
The major portion of debt mutual funds comprises investments in non-convertible debentures (NCDs) and bonds. The primary objective of debt mutual fund is capital protection.
Check out the best debt funds in India to invest
Large-cap mutual funds invest a major portion (minimum 80%), of the fund in companies with huge market capitalization and are top 100 companies on the index.
These are established companies with a strong performance record. The return from large-cap funds over a period of time is less volatile, relatively stable and sustainable.
Check out best large cap mutual funds to invest for long term goals
A mid-cap mutual fund has a larger portion (65%) of the corpus invested in mid-cap companies, i.e. companies ranking from 101st to 250th in terms of market capitalization
Multi-cap mutual funds invest 65% of the total assets in companies belonging to all types of market capitalisation. They offer the desired diversification among the large, mid and small-cap funds.
Hence, the risk and returns are lower than the individual cap fund.
In India, Gold mutual funds are primarily funds of funds with the objective of investing in gold ETFs.
Gold mutual funds closely mimic the returns generated by the gold ETF over a period of time.
Index funds are mutual funds with investment in equities of companies comprising the underlying index. For example, the index fund tracking BSE index will invest in 30 companies, which constitutes the BSE Sensex.
Index funds are passive funds and the returns are almost the same as that generated by the said index.
Hybrid Funds are mutual funds with investments in equity and debt in a fixed proportion. For example, a conservative hybrid fund will have 75% to 90% of investment in debt.
A balanced hybrid fund will have 40% to 60% of the investment in debt and an aggressive hybrid fund will have 65% to 80% of the investment in equity instruments.
To invest in a mutual fund you can either make a lump sum payment or opt for SIP. To purchase the units you can do so by buying;
Here is a complete guide on how to invest in mutual fund
Different mutual fund schemes have different investment objectives and the investment horizon depends on the investment objectives.
All the mutual funds which mainly invest in equities for a longer period have the capacity to generate higher returns and hence are the best mutual funds to invest for the long term.
For beginners, mutual funds provide a hassle-free investment option. However, the new investor should be clear about his investment goals and understand the risk associated with various asset classes.
The better way to start a mutual fund investment would be using SIP. Here are the best mutual funds for sip.
There are three ways in which you can buy mutual funds online.
You can invest Rs. 500 per month in one of the following ways
No matter what you choose, ensure that it aligns with your financial goals.
Direct mutual fund plans can be bought through
Mutual funds can be redeemed online or offline. In online redemption, you need to log into your account and opt for redemption. On clicking the redemption button the redemption request will be generated and the funds will be credited to your linked account.
For offline redemption, you need to fill the “Redemption Request Form” and submit it to the mutual fund house or registrars.
The returns from mutual fund investment can be calculated in two ways;
Absolute return is used when you want to calculate point to point returns. The holding period does not come into the picture.
Formula for calculating absolute returns = (current NAV – initial NAV) / initial NAV x 100.
Annualised returns do not account for the holding period. The annualised returns calculation is used when the holding period is less than 12 months.
Annualised returns are also known as effective annual yield.
Formula for calculating annualised returns = (( 1+ absolute return) ^ (365 / number of days)) – 1.
You can use the MF Utility portal to have a consolidated view of all your mutual fund investments. To use the portal, you need to create an e-CAN (Common Account Number).
Otherwise, you can get a Consolidated Account Statement (CAS) from Karvy and CAMS to view all your mutual fund investments.
Online mutual fund investment platforms can help you track only those investments which are done through them.
