All you need to know about Mutual Funds in India

Mutual Funds

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Do you want to earn money from the share market but don’t have much knowledge or time required to invest in shares?

If yes, mutual funds in India are the best investment vehicle, you can opt to invest your money. It provides you with a direct opportunity to invest money in profitable financial vehicles like stocks, bonds, money market instruments, etc. As mutual funds are managed by industry professionals, it is a great investment opportunity that involves lesser risk and better returns.

What is a Mutual Fund?

A mutual fund is a type of financial scheme or program that is made from collecting money from various investors to invest in stocks, bonds, money market instruments, etc. A professional money manager takes all the investment decisions in mutual funds with an aim of finding an ideal policy for you that can generate maximum profits. They study and research the market every day and they are completely knowledgeable about the field.

A mutual fund is developed in a structured manner and its aim is moulded to achieve the goals of the investors and their investments. The value of a mutual fund is decided by its performance. So, while buying a mutual fund, you are more accurately investing your money in multiple companies and not just one company, reducing the risk of loss. The price of a mutual fund is called or referred to as Net Asset Value (NAV).

What is a mutual fund and how does it work?

Types of Mutual Funds

There are many types of mutual funds available to meets the need of every type of investor. The most common type of Mutual funds is:

Equity Funds

Equity funds are the largest category of stock funds. Just like its name, these types of mutual funds mainly invest in stocks. There are various subcategories under equity funds. These funds can include investments in domestic and/or international companies.

Fixed-Income/Debt Funds

The next major type of mutual fund is fixed income funds. It comprises investments that will give a set of fixed return rates. The fixed return funds include corporate bonds, government bonds, debt instruments, etc.

Index Funds

Index funds have gained huge popularity in recent times. It comprises of stock that corresponds with the market index. So there is no major research or analysis work required for this fund. This is one of the most consistent funds in terms of returns and one should look to invest if they are looking to mimic the average returns of the stock market.

Balanced Funds

It is a composite of various assets like stocks, bonds, money market instruments, etc. The purpose of designing this fund is to reduce the risk involved in investing in a single type of investment.

Money Market Funds

The money market fund is a risk-free investment. It is mostly concerned with government treasury bills. Money market mutual funds are a safe and reliable investment opportunity.

There are many more kinds of mutual funds for investment. So, with a myriad of options available, an investor can get confused about how to choose the best mutual fund to invest in. So, here we have created a complete guide on how to choose the best mutual funds.

Also: Learn about What is an ETF?

How to Choose the Best Mutual Fund?

Just follow these simple steps to choose the ideal mutual fund that would be relevant for you:

Identify your Goal

Before investing in mutual funds, you need to identify your investment goals. Are you looking for a long-term goal like a child’s education or a short-term goal like buying a new car? Identifying your goal is an important step when choosing a mutual fund.

Identify Your Risk Tolerance

Also, consider your personal risk tolerance. Returns and risks are directly proportional to stock markets, so if you want more returns, you should have a high-risk tolerance. Make a balance between your desire for returns and the ability to take risks.

Identify Your Investment Amount

The investment in mutual funds can range from small to big scale. So decide in the beginning about your amount of investment.

Avoid Mutual Funds with High Turnover

At the beginning of investments, it would be improper to invest in a mutual fund with high turnover to avoid high risk.

Choose a Fund with Maximum Diversification for Less Risk

As mutual funds invest in different stocks or investment types, the risk is comparatively lower. Choose a fund that invests your money in diversified investments to reduce the risk.

Check the Fund’s Performance Consistency

The potential of a fund can be determined by the performance consistency in the past and how the fund was managed by the fund manager and how it performed. Check the three and five-year returns of the fund before making a choice.

Choose a Suitable Type of Mutual Fund

Choose the type of fund and evaluate if its a recent trend. There are many kinds of mutual funds available to suit your needs. You need to understand the various kinds and match them with your needs and expectations. After selecting the ideal mutual fund, you need to analyze its recent online trends to avert risk.

Monitor the Market

After selecting the right type of mutual fund, research about it. After you make a decision to invest, you need to monitor its performance for the best results. Track your investment and its performance.

Passive Income stream from a mutual fund

Top Mutual Funds in India

India has a growing market for mutual funds and it is the investment of choice for the bulging middle class. Here are the Top Mutual Funds in India for investment purposes:

EQUITY(Large & Midcap)
Fund NameAUM (Cr)1 M6 M1 Y3 Y5 Y
CR Bluechip Equity Fund – D (G)82.116.30%30.50%27.10%15.70%17.00%
CR Bluechip Equity Fund (G)351.716.20%29.50%25.30%14.30%15.60%
Axis Bluechip Fund – D (G)3644.326.70%30.20%23.50%16.40%17.40%
Axis Mid Cap Fund – Direct (G)1,420.716.70%34.30%33.00%15.50%17.40%
Invesco India Midcap – D (G)148.17.30%36.30%32.50%9.40%15.60%
Taurus Discovery (Midcap) – D (G)0.76.20%33.30%31.40%7.00%14.20%
DEBT(Long to Medium Term)
Fund NameAUM (Cr)1 M6 M1 Y3 Y5 Y
IDFC Bond Fund – LTP – D (G)68.441.00%3.10%12.90%10.30%9.70%
Tata Income Fund – D (G)22.530.60%4.10%12.70%8.90%8.80%
IDFC Bond Fund – LTP (G)605.470.90%2.80%12.20%9.60%8.90%
SBI Magnum Medium Duration Fund – D (G)7300.70%5.20%12.80%10.40%11.00%
Tata Medium Term – Direct (G)24.680.80%4.50%12.70%3.00%5.30%
SBI Magnum Medium Duration Fund (G)2,531.960.70%4.90%12.30%9.80%10.20%
HYBRID(Aggresive & Conservative)
Fund NameAUM (Cr)1 M6 M1 Y3 Y5 Y
CR Equity Hybrid Fund – DP – (G)78.914.70%23.60%23.30%12.40%14.10%
CR Equity Hybrid Fund – RP – (G)2,773.484.60%22.90%21.90%11.10%12.80%
DSP Equity & Bond Fund – Regular (G)4,943.415.20%24.50%20.20%8.70%12.80%
CR Income Saver Fund – D (G)14.680.020.0970.1590.1030.099
CR Income Saver Fund (G)203.070.0190.090.1460.0920.087
LIC MF Debt Hybrid Fund – D (G)2.790.0170.0680.1150.0740.085

What is Load in a Mutual Fund?

Purchasing or selling the mutual funds involve some commission known as load. The load is used to pay the intermediary like the money manager, broker or the investment advisor. The load is a payment for the experience and time that the intermediary has applied to find the mutual fund, invest your money and manage it.

Types of Loads

·       Entry Load

This is the commission that the investor pays at the time of the initial investment purchase. Usually, the entry load is deducted from the investment, reducing the investment. It is charged by the mutual fund manager to cover the distribution cost.

·       Exit Load

Exit load is the charges or fee paid to the intermediary for selling the funds for the investors. The commission is the percentage of the value of the mutual funds sold. The return from selling the mutual funds is reduced as the exit load is charged from the Net Asset value.

How to Avoid Overpaying for Your Investment

Paying too much fee for your mutual funds can affect your financial goals. Here is how you can keep a check on your investment fee:

  • Understand all the cost associated with investing before you invest in the mutual funds
  • Work with an adviser who can find appropriate investment based on your goals with the lowest fee associated with it. Also, ask your investor to explain all the costs clearly before the investment.
  • Hire an advisor who is fiduciary, a person who provides financial services and is legally obligated to work in your interest.
Investment Advisor Character Set

After understanding and considering everything mentioned above, you’ll know which type will suit you the best. In case you are still confused about it then start looking at the bigger picture. The returns from the Mutual funds are not instant. Invest only when you are ready as Mutual funds are subject to market risks.

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