Basics Mutual Funds
What are Mutual Funds?
In a mutual fund, money from various investors is pooled together and invested in a portfolio of instruments. A mutual fund may invest only in equities or debt instruments or a mixture of the two, also called balanced funds.<br>Mutual funds are best suited products for individual investors. They offer different products across various investment horizons and different risk levels.
Types of MF can be segregated as per the risk profile of customer in following manner
Liquid Funds and Ultra Short-term Funds
Short to Medium term Debt Funds
Moderately low risk
Long-term Debt Funds, Gilt Funds, MIP Fund
Balanced Funds, ELSS, Diversified Equity Funds, Index Funds and Gold ETFs
Moderately high risk
Sector Funds, Thematic Funds, Sectoral ETFs
Why invest in Mutual Funds?
Mutual funds are ideal for investors who do not like to put all their eggs in one basket. Along with diversification, mutual funds offer the advantages of professional management of funds and low costs.
Investment in mutual funds offers the following advantages:-
Diversification of portfolio
Since mutual funds invest in a bouquet of instruments, they offer an effective means of diversification for the investor.
Mutual funds are an excellent means of investment for people who do not have the time or the expertise to study the markets in depth before making investment decisions. The funds are generally managed by well-qualified fund managers, and it is always prudent to check the fund manager’s background before investing in a fund.
A mutual fund unit is much less expensive than the individual stocks in which the fund has invested. Thus, with a given amount of money, an investor can buy more number of units of mutual funds than individual stocks.
Investment in mutual funds offers several tax benefits. Investment gains beyond 1 year are tax-free. Furthermore, dividends received through mutual funds are exempt from tax, while investment in certain types of mutual funds is deductible from the taxable income to reduce the tax liability. Thus, mutual funds can be used as effective tools for tax planning.
How do I invest in Mutual Funds?
Mutual funds can be bought through a mutual fund distributor or agent. Mutual fund units are also traded on exchanges and can be bought and sold there from. IIFL offers both services, acting as a distributor agent for mutual funds, as well as offering broking services for trading in the markets.