Mutual Funds is nothing but a pool of funds that is managed by a professional fund manager. The fund manager collects the money from different investors who are eager to invest in securities and the income of this collective instrument is distributed equally among investors after deducting the expense ratio which is calculated on a scheme’s NAV (Net Asset Value). An AMC (Asset Management Company) is also appointed to oversee and manage the fund portfolio of the client.
SMIFS is an AMFI (Association of Mutual Funds in India) registered Mutual Fund Distributor along with a dedicated mutual fund desk and excellent research team for its clients’ growth in the investment.
Why do people buy Mutual Funds?
Clients can diversify their unsystematic risks by investing in Mutual Funds. The features of this fund include:
- Professional Management: The fund managers do all the research regarding the securities and help in monitoring their performance.
- Diversification: Distributing funds into a set of companies and industries helps lower the risk factor.
- Affordability: The price of most mutual funds is low in case of investment and subsequent purchase.
- Liquidity: Investors who have invested in Mutual funds are free to redeem their shares for the current net asset value and redemption fees.
What are the different types of mutual funds based on Asset Class?
There are two different types of Mutual Funds based on Asset Class. Investors should always select the mutual funds depending on their risk appetite and financial objectives.
a. Equity Mutual Funds:
Equity Mutual Funds focuses more on the pool that is filled with stocks of different companies. This mutual fund inherits a greater market risk than others. Also the returns from equity can fluctuate. This fund is further divided into two parts-
1. Based on Market Capitalization:
- Large-cap Equity Funds: Investing in shares that fall under the large-cap are beneficial for these companies often have a track record of performing consistently well for the last few years.
- Mid-cap Equity Funds: The stability of companies under mid-cap is relatively slow. Yet they have a higher capacity of growing than large-cap companies.
- Small-cap Equity Funds: These have a high capability of falling or rising and are more exposed to risk factors. Yet again, they have great opportunity to generate the highest returns.
- Multi-cap Equity Funds: Here, the investment takes place on multiple ‘caps’ in a defined proportion. The fund manager often allocates them aggressively in order to capitalize the volatility.
2. Sector Based Equity Funds: These funds invest in specific fund stocks like Pharma, technology, etc.
b. Debt Mutual Funds:
A major portion of the pooled amount is invested in government securities, corporate bonds, debentures and other money-making instruments. These funds work on debt as the bond issuers borrow money from the investors to generate income. For this reason, they are at a lower risk than the equity funds.
The different types of Debt Funds include:
- Dynamic Bond Funds-The fund manager can change the composition of a client depending on the interest rate, making the fund dynamic.
- Liquid Funds– This fund provides better returns with much needed liquidity. Their short maturity also makes them risk-free.
- Income Funds-These funds generally involve longer maturity, more stability and regular flow of income.
- Short-Term and Ultra Short-Term Funds-The maturity range of this fund is 1-3 years. Investments also take place within the given time range.
- Gilt Funds– These funds invest in high-rated government securities and has zero risks, by default.
- Credit Opportunities Funds-These funds may be quite risky and are more focused on gaining higher returns by holding low-rated bonds.
- Fixed Maturity Plans– These funds invest in fixed income securities like government bonds and corporate bonds.
When to invest in Mutual Funds?
One can start investing in Mutual Funds based on the investment objectives. Here are some of the schemes that can help in investing in mutual funds.
- Growth Oriented Scheme:
This Mutual Fund targets that the wealth creation is medium and long-term. Due to this, about 65% of the client’s funds is allocated in equities and is shuffled to earn benefits from the market movements.
- Income Oriented Scheme:
Earning a regular income requires the underlying assets to provide a steady return. This fund wants to allocate most of the funds into government securities, corporate debentures, bonds and money making instruments. But, these funds can only create wealth for a defined time.
- Balanced Fund:
Here, the fund gets allocated in both equities and debt instruments in defined portions. The main objective of this fund is to ensure that they have an equal growth with regular income and lowest possible risk. Fund managers allocate 60% of their funds in equities and the rest in debt instruments.
- Liquid Fund:
This funds targets liquidity, capital protection and reasonable income. Most of it is invested in government securities, treasury bills, certificate of deposits, etc. Compared to bank accounts, this fund offers better returns; even though there is not much volatility.
What are the benefits of Mutual Funds?
- Professionally Balanced: A big advantage of Mutual Funds is that they are managed by professionals, having years of experience in investing.
- Returns: The returns and the deliveries of the mutual funds showcase its performance. On the bright side, Mutual Funds have historically delivered better returns in the past years, compared to other investment options like fixed deposits in banks.
- Affordability: Investments in Mutual Funds are comparatively low (INR 500/-) than most other investment options.
- Liquidity: The liquidity of Mutual Funds is much more compared to other instruments for you can buy and sell
- Diversification: The pool of funds in Mutual Funds is distributed into different assets to diversify the portfolio. Thus, clients can easily invest in Mutual Funds, even with a very small amount and reduce their risk factor.
- Well Regulated: Regulated by SEBI, the Mutual Funds maintain transparency about their investor’s information. They ensure that tight regulations are initiated while processing the investor’s request.
What are types of Mutual Fund Schemes?
There are two different types of Mutual Funds Schemes. These are:
1. Open-End and Close-End Funds:
An open-ended scheme does not have any maturity date. It is available for subscription and redemption throughout the year where one can deposit and withdraw their stocks.
A Close-End Fund can only be subscribed for a fixed time and have a maturity date, just like a fixed deposit in the bank. The units of a Close-ended fund are listed in the stock exchange and can be traded.
2. Actively Managed and Passively Managed Funds:
In Actively Managed Funds, the fund manager gives advice on which stocks to buy and which ones to hold. He/She also provides his professional judgment backed by analytic research and ensures that maximum returns are generated.
The Passively Managed Funds follow a simple market pattern instead of using his/her own analysis. A Passive Fund Manager checks the scheme’s benchmark is in exact same proportion as the market. He/She also targets on initiating the exact returns or outperform the benchmark.
How are mutual funds priced?
The price of a unit of Mutual Funds is calculated by dividing the net value of the funds by the total number of units that all the investors hold.
When to buy and sell in Mutual Funds?
The buying and selling of Mutual Funds is done mostly from the fund itself or from a broker of the fund. The price paid by the investors is actually the fund’s Net Asset Value (NAV) plus the fees charged during the time of purchase.
These funds are redeemable, meaning; they can be bought and sold anytime and the payment is sent to you within seven days.
Explain the fee structure of Mutual Funds?
While investing in Mutual Funds, investors are not aware about the expenses they have to bear. There are mostly two different types of fees involved in Mutual Funds- Shareholder Fees and Operating Fees.
- Shareholder Fees– These are the fees paid to person who resolve investor queries and gives information regarding the investments.
- Operating Fees– All the charges including marketing expenses, administrative expenses, audit fees, register fees, custodian fees, investment management fees; all come under the operating fees. This fee is a part of fund’s daily net assets.
Why invest with SMIFS?
SMIFS is empaneled with all leading fund houses along with a dedicated mutual fund desk. Our research team ensures the growth of our client’s investments and has had an excellent track record of serving clients and selecting the best suited schemes based on client’s preferences.
Apart from this, our research team also provides regular ratings and updates on the best Mutual Funds in the market. With the help of this, clients can invest their money in a wide range and types of mutual funds. If you are a beginner, you can start learning about the top 5 ways to start investing in stock market.