A mutual fund is a financial product that includes bonds, shares, and other securities. In the mutual fund investment, the fund is collected from the different investors to invest in shares, bonds, types of securities, money market instruments, and other investment intermediaries. A mutual fund is an opportunity for the investor which allows diversification to many different stocks.
Expert fund managers are responsible to invest the pooled money in those assets to earn good returns. The Securities and Exchange Board of India (SEBI) and the Association of Mutual Funds of India (AMFI), (subject to the SEBI regulatory provisions) regulate the mutual fund. SEBI’s main objective is to protect the investor’s interest. It also regulates, supervises, and formulates the policies applicable to all the MF houses. SEBI and AMFI are also responsible to issue the guidelines to all the mutual fund houses from time to time.
Every fund has a different set of objectives. To determine which mutual fund investment is suitable, you need to check the fund’s investment objective matches your financial goals and risk appetite. Based upon the risk taking ability, the investor can choose and invest in the Mutual funds.
Based on the asset class, there are four types of mutual funds investors look into invested:
You can now invest in mutual funds online from the comfort of your home. Mutual fund investment has become easier than ever before. Therefore, once you have identified the best mutual funds to invest in India, all you need to do is:
Mutual funds are regulated by SEBI. They must strictly invest as per the scheme document filed by them with SEBI.
However mutual fund investment is subject to market risk and past performance is not guaranteed in future.
Your capital may reduce or appreciate based on the performance of the underlying market.
Mutual funds regularly report to SEBI their performance.
Mutual fund investment is highly liquid.
You can submit the mutual fund units for redemptions and your investment will be redeemed to you based on the current price or Net asset value (NAV) as it is called.
Redemption request can be submitted online or physically at the office of the fund.
Liquid funds are credited to your bank on T+1 day. All rest are redeemed on T+3 days.
Mutual fund returns are in the form of capital appreciation /Dividend.
Funds pay dividend (in dividend schemes) based on the dividend/ capital gains generated on the underlying stocks.
The past performance of various funds is given in our recommended Mutual Funds section. The returns have also been indicated.
Some funds have done well while not all funds have been better than the market. Your gain is the increase in the value of the fund due to appreciation in underlying stocks.
SEBI is the regulating authority to ensure that the Mutual Fund functions in the matter stated in the offer document. In recent times SEBI has played an active role in curtailing the expenses incurred by the fund in management of the investments. The cost of management has been reduced from over 6% to less than 2.5%
There is also Association of Mutual Fund of India (AMFI) which has all Mutual funds as its members. This body also regulated its members and has rules for conduct of each member.
Mutual Fund distributors are the last mile connectivity with the investors which are regulated by SEBI. They are permitted to act as advisors and charge a fee from investor or act as a distributor and get fees from the Mutual fund. This protects the interest of the investor, since there is no conflict, wherein the distributor sells the products of MF that gives them high commissions.
BSE as well as NSE provide a platform wherein an investor through his broker can buy and redeem their mutual fund units. This is very convenient and easy.
Records of all the mutual fund holdings is kept with the Registrars. They accept money, allocate units, pay dividends and redeem units on request, all on behalf of the Mutual Fund. They also send regular holding statement to you.
Mutual fund dividend is taxed as income from other sources. Difference in NAV at the time of purchase and redemption is taxed as capital gains tax. If the scheme selected is debt scheme, then long term capital gains will accrue after 3 years of investments. In case of equity scheme the long term, capital gains arise after one year.
ELSS is a scheme floated by most mutual funds that permit saving in taxes, since there is a rebate on investment. There is a 3 year lock-in for this investment.