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Mutual Funds

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Each investor owns units, which represent a portion of the holdings of the fund. The income/gains generated from this collective investment is distributed proportionately amongst the investors after deducting certain expenses, by calculating a scheme’s "Net Asset Value" or NAV.

Mutual Fund Investopedia

Types of Mutual Fund

Mutual funds are sub–divided into various categories by SEBI to make investment much easier and transparent

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Benefits of Mutual Fund

There are many advantages from investment in mutual funds. To promote AMFI start a compaign "Mutual Fund Sahi Hai"

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Basics of Mutual Fund

A mutual fund is collection of money from many investors to invest in securities such as stocks, bonds, etc.

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Methods of Investing

You can invest in two ways in mutual funds: SIP and Lumpsum. SIP is more popular over Lumpsum method

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Objectives of Mutual Fund

To chose mutual funds efficiently & convinently, objectives are defined. Objectives are based on your financial goal

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Selection of Mutual Fund

There are various parameters such as time of investment, which allow you to choose scheme(s) which suits you the best

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Mutual Funds: Types

Based on asset class, mutual funds are sub-divided into following categories

These funds can predominently invest in equity asset class. This class is generally known for its un–precedent behaviour and consider risker than others. However, this class is more rewarding one if you can invest for longer period of time. The capital market swing in either direction due to many factors such as political environment or world's economic scenario. These are divided into four categories:

Large–cap Funds:

In this category, mutual fund invest only in top 100 companies in terms of market capitalization. These funds can invest minimum upto 65% of their total corpus in large cap companies. These funds are more stable and little bit less risky than mid-cap/small-cap funds.

Mid–cap Funds:

These type of funds invest in mid-cap companies. These funds have an exposure of about 65% in mid-cap category stocks. Mid-cap stocks have the pontetial to give higher return compared to large cap but they are prone to higher risk as well. These schemes are suitable for longer time atleast for 10 years.

Small–cap Funds:

These types of funds invest in smaller companies. These schemes are very volatile and must be careful while selecting them. Companies ranking from 251st onwards, considered as a small–cap companies. Although, these funds have potential to generate higher returns on one hand and risky on the other.

Multi–cap Funds:

Multi–cap funds can invest in any of the scheme discribe above. The allocation to Large–cap, mid-cap, and small–cap can vary from scheme to scheme. Generally, they have an exposure of around 65%-70%, 25-20% and rest of corpus respectively.

ELSS Funds:

These are designed for those who want to save tax u/s 80C of Income–Tax Act, 1961 on one hand and also want to create wealth by investing in stock market. These schemes have locking period for 3 years.

Equity Income/Dividend Yield Funds:

These are designed for those who want to earn dividend as a regular income. But, it is not guaranteed that they generate regular and handsome dividend. One should be very carefully while investing in these schemes.

Value Funds:

Value fund invests in shares of fundamentally strong companies that are currently under-valued in the market with the hope of good returns over long time.

Focused Funds:

These schemes have an exposure to a maximum of 30 stocks.It is necessary to mention in their objectives where they are focused (vig; large-cap, mid-cap, small-cap).

Sectoral Funds:

They invest in perticaul sector such as banks, power, pharma, etc. They are more riskier as they expose their portfolio to specific sector only and if this perticular sector have some problem, then fund performance may get detoriate. So be careful before investing.

Thematic Funds:

These schemes have an exposure to a perticular theme such as infrastructure. The minimum investment in equity & equity related instruments of a particular theme shall be 80 percent of total assets.

These funds can predominently invest in debt asset class. These funds can consider as a income generator. The major source of return from debt funds is regular income from interest. The interest is pre-defined by the issuer guaranteed either by government undertaking or by physical assets of an issuer. They invest in different debt securities such as government bonds, corporate bonds, commercial papers, money market instruments for different time period. Since interest is pre-defined the returns are also limited. They are sub–categories into following heads:

Overnight Funds:

It is an open–ended debt scheme. The life span for these funds is only for 1 day, i:e the funds get matured overnight.

Liquid Funds:

It is also an open–ended debt scheme. They invest in debt and money market instruments which get matured within 91 days.

Ultra Short Duration Funds:

They invest in debt and money market instruments which get matured between a time frame of 3 months to 6 months.

Low Duration Funds:

They invest in debt and money market instruments.It is suitable for those investors who is willing to prak their investment for 6 months to 12 months.

Money Market Funds:

They invest only in money market instruments.It is suitable for those investors who is willing to prak their investment upto 12 months.

Short Duration Funds:

They invest in debt & money market instruments.It is suitable for those investors who invest for time ranging from 1 year to 3 years

Medium Duration Funds:

They invest in between 3 years to 4 years in debt & money market instruments.You can switch your already invested money to these schemes if you are nearby to your goal.

Medium to Long Duration Funds:

They invest with a maturity in between 4 years to 7 years in debt & money market instruments.The portfolio duration may be 1 year to 7 years.

Long Duration Funds:

They invest with a maturity above 7 years in debt & money market instruments. Not suitable for those investors who have such a time frame for investment. Equity as an asset class is good option to invest.

Dynamic Bond Funds:

They invest with any maturity plan in debt and money market instruments. Suitable for less risky investors.

Corporate Bond Funds:

They invest with ratings either AA+ or higher corporate bonds. The minimum investment should be 80 per–cent of total asset in corporate bonds with higher ratings.

Credit Risk Funds:

They invest with ratings lesser than that of AA+ or lower corporate bonds. The minimum investment should be 65 per–cent of total asset in corporate bonds with lower ratings.

Banking & PSU Funds:

They invest in debt instruments of banks and PSUs, municipal corporation bonds. Minimum 80 per–cent should be invested in these bonds.

Glit Funds:

Glit fund means those invest only in government securities called G–Secs.The minimum investment should be 80 per–cent across maturity.

Floater Funds:

They invest predominantly in floating rate instruments. The minimum investment should be 65 per–cent across maturity.


These funds can predominently invest in combination of different asset classes such as equity, debt, money market instruments. The allocation of these asset classes depends on objective of the scheme. Due to multiple asset class, these funds are little bit less riskier and any other asset class. The returns are also somewhat lower and eqity asset class due to debt component in its portfolio. They are sub–divided into following categories:

Conservative Hybrid Fund:

They are largely invested in debt funds with 75 per–cent to 90 per–cent while 25 per–cent to 10 per–cent in equity and equity related instruments.

Balanced Hybrid Funds:

As the name suggest they invest in both equity and debt funds according to their scheme objective. Generally, they have an exposure of around 50 per–cent to 60 per–cent in equity & around 50 per–cent to 40 per–cent in debt market.

Dynamic Asset Allocation or Balanced Advantage Funds:

The main feature of these funds is that they allocate automatically their funds in between equity and debt instruments.No predetermined fund allocation should be done. According to market situation they reduce or increase their exposure in equity and debt.


The investment objective of such funds is to provide financial solution to particular requirement. They are sub–divided into following categories:

Retirement Fund:

The objective of these funds is to provide good wealth required post retirement. These funds have locking period of 5 years or upto the age of 60 years, whichever is earlier, from date of allotment.

Children's Funds:

An open ended fund for investment for children having a lock-in for at least 5 years or till the child attains age of majority (whichever is earlier). Scheme having a lock-in for at least 5 years or till the child attains age of majority whichever is earlier.


These are very special funds and their objective is to meet out certain criteria. They are sub divided into following categories:

Index Fund:

The objective of these funds is to meet the performance of its benchmark index, eg, index fund having Nifty50 as benchmark need to match the performance of Nifty50 index.

Fund of Funds:

An open ended fund of fund scheme investing in an underlying fund. The minimum investment in the underlying fund shall be 95 percent of total assets.


Mutual Funds: Benefits

Mutual funds have many benefits which make investment more lucrative among investors

Professional Management

Since investment is not an easy task. It involves loads of efforts and multiple task to manage your investment. Mutual funds appoints fund managers who on–behalf of investors, buy/sell or hold the securities, and therefore your portfolio is managed professionaly by experts.


Mutual funds offer great liquidity, i:e, you can redeem units (in full or partial) at any time. You needn't search for buyer for your investments. Simply put a request to AMC and they will do take the necessary action against your request and redeem your money

Regulatory Comfort

Since SEBI regulates the securities market in India. They also keep strict check over activities of mutual funds and fund managers. They also ensure the integrity of capital markets and hence your investment is only expose to market volatility and not to AMCs


Mutual funds invest in different asset classes and also on number of securities. These leads to diversification, and hence limited the losses. When one asset class underperform, gains from the other asset class will nullify the loss and thus your losses are limited.

Systematic Approach

Mutual funds also offer the investors to invest through Systeamtic Investment Plan (SIPs); withdraw through Systeamtic Withdraw Plan (SWPs) and switch through Systeamtic Transfer Plan (STPs). Such systematic approach leads discipline which is a great tool for wealth creation.

Tax Deferral

Mutual funds offer options, whereby the investor invest in the scheme for several years. By selecting such options, it is possible for the investor to defer the tax liability. This helps investors to create wealth faster than would've been the case, if they're to pay tax on the income each year.

There are many more benefits of mutual funds investments, other than those listed above. Many investors create wealth by the benefits of mutual funds.

Mutual Funds: Basics

Through mutual fund investment an investor can get an exposure to different type of asset class such as equities, bonds, money market instruments, and/or other securities with the heip of fund manager appointed by AMCs.

Mutual fund can have different role for each participant in it. The main objective is to create wealth for the investor so they can plan their goal and provide soundness to their financial planning. Mutual fund is so designed that every individual can participate and purchase units based on their needs and goals.

The money that is pooled from many investors is a big source of funding for government, companies, that meet out expenses for different projects.

Mutual fund investment needn't require too much experties and even a lay-man can invest with the help of a good advisor. When mutual fund do any transction in market, government levi tax on them and therefore huge money is being sumed–up which is used for different projects, such as to develop infrastructure of country. Thus mutual fund play a vital role in economic front. They also work as a market stabilizer.

The mutual fund issue certain uints for the scheme against the investment amount to all the unit holders of the scheme. The price on which units are alloted is called "Net Asset Value or NAV" This value of NAV gets updated on daily basis depending upon the movement of the market.

Mutual Funds: Methods

Investments in mutual funds can be done in two modes:

SIP Investment

SIP means Systematic Investment Plan. SIP is a process to absorbe the volatility of market. You can invest a fixed amount on regular basis in a selected mutual fund scheme for pre-defined tenure. The frequency of SIP can be done on daily, monthly, quarterly, half–yearly or yearly basis. The amount so invested allot units to unit holder according to NAV on that date. There are many advantages to invest via SIP mode. click here to see sip benefits. Watch Video

Lumpsum Investment

It is a one time investment. For example, if an investor is willing to invest the entire amount available with him in any mutual fund scheme, it will refer to as lump sum mutual fund investment. This method of investment doesn't allow Rupee Cost Avearging.

Mutual Funds: Objectives

Every mutual funds scheme has some objectives of investment, which help investors to select the schemes accordingly.



Save tax upto 46800/- per annum

Create wealth over long term

Lowest locking period for 3 years

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Invest for your child future

Inflation adjusted return

Exact calculation for goal

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Assistance for financial planning

Calculation for retirement need

Calculate your retirement fund

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Assistance for fund selection

Create wealth over long term

Fund review–must for wealth

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Mutual Funds: Selection

Selection of any mutual fund scheme depends on different parameters, such as time horizon, financial goals, etc. Let us understand them in detail:

Financial Goals:

Before investing in any mutual funds scheme, if you set your goal, it will be much easier for you to select the mutual fund scheme, eg, if your goal is to save tax you must go for ELSS scheme.

Time Horizon:

It is the most important factor. As long the time period is, more is compounding, and therefore get higher returns. If you define your goal, then it is very clear the necessary time to achieve that.

Fund Management:

Before selecting any scheme it is very important to do some exercise to know about the fund management, especially about the fund manager and his/her style of investment. This help you to synchronize with your goal and you get the best fund available in mutual fund industry.

Fund Objectives:

Fund objective is eqaully important to identify the scheme you want to invest. For example, if your goal is wealth creation over long time, you must invest in some good equity mutual fund.

Risk Appetite:

You must consider this parameter very seriously. Analyse risk associated with the fund or scheme and also about your risk taking ability. Observe beta of scheme to choose right muutal fund scheme, which indicates risk associated with the fund compared to its benchmark. If beta is high, fund or scheme is highly volatile and contain higher risk and vice–versa.

Child's Future Planning

Save for your child's future with Mutual Fund

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