What Are Mutual Funds?
Mutual funds pool money from multiple investors to invest in diversified assets like stocks, bonds, and gold. They offer diversification, professional management, and potential long-term growth. Returns and risks depend on the fund’s underlying investments.
Key Features:
Professional Management: Experts handle investments.
Diversification: Reduces risk by spreading investments.
Liquidity: Easy buying and selling.
Expense Ratio: Management fee for running the fund.
Net Asset Value (NAV): Price per unit of the fund.
How Do Mutual Funds Work?
- Investors pool money and buy fund units.
- Fund managers invest based on strategy.
- NAV changes as asset prices fluctuate.
- Returns come from capital gains or income distributions.
- Investors can redeem units at NAV.
- Fees apply, including management costs and exit loads.
- Tax rules vary for different types of funds.
Types of Mutual Funds
By Structure:
- Open-Ended Funds: Buy/sell anytime, highly liquid.
- Close-Ended Funds: Fixed term, limited redemption options.
By Asset Class:
- Equity Funds: High risk, high return (invest in stocks).
- Debt Funds: Lower risk, stable returns (invest in bonds).
- Hybrid Funds: Balance between equity and debt.
Ways to Invest in Mutual Funds
1. Lump Sum Investment
Invest a large amount at once (e.g., ₹1 lakh at NAV ₹1000 = 100 units).
2. Systematic Investment Plan (SIP)
Invest fixed amounts periodically, benefiting from:
- Rupee Cost Averaging: Buy more when prices are low.
- Discipline: Regular investments without timing the market.
- Lower financial burden than lump sum.
How to Invest in Mutual Funds?
Investment Methods:
- Direct via AMC website (lower cost, manage separately).
- Through Distributors (higher cost, commissions apply).
- Using Investment Platforms (e.g., Shreem Plus) (all funds in one place, lower costs).
Steps to Invest via Shreem Plus:
- Sign up and create an account.
- Choose a fund and investment method (SIP/lump sum).
- Complete KYC (PAN, mobile, bank details).
- Submit documents and verify via eKYC.
- Start investing once approved.
Required Documents for KYC
Identity Proof (Any One):
- PAN Card (Mandatory)
- Aadhaar Card
- Passport / Voter ID / Driving License
Address Proof (Any One):
- Aadhaar / Passport / Utility Bill / Bank Statement
KYC can be done online via eKYC.
Benefits of Mutual Funds
- Diversification: Reduces risk.
- Expert Management: Professional decision-making.
- Liquidity: Easy entry and exit.
- Tax Benefits: ELSS funds provide tax savings.
- Flexibility: Various options to suit goals.
- Affordable: Cost-effective due to pooled funds.
Disadvantages of Mutual Funds
- Exit Load: Charges on early withdrawal.
- Expense Ratio: Management fees apply.
- Over-Diversification: Can limit high returns.
- Market Risks: Subject to market fluctuations.
Key Mutual Fund Terms
| Term | Definition |
|---|---|
| AMC | Asset Management Company |
| NAV | Net Asset Value per unit |
| SIP | Systematic Investment Plan |
| NFO | New Fund Offer |
| AUM | Assets Under Management |
| CAGR | Compound Annual Growth Rate |
| Exit Load | Fee for early withdrawal |
| XIRR | Extended Internal Rate of Return |
Conclusion
Mutual funds are an excellent investment option for wealth growth. They offer diversification, professional management, tax benefits, and liquidity. However, investors should consider fees, risks, and fund objectives before investing. Always review scheme-related documents before making decisions.
Ravi Chandra
Mutual Fund Distributor (ARN 317654)
