Investor neither have skills / expertise nor have the huge capital / time to directly
invest and also track his investments in capital & bond markets. mutual funds
are the best investment instruments for long term wealth creation for a common
Investing in a Mutual fund offers an excellent for diversifying risk as well as
What is Mutual Fund?
A mutual fund pools the money of various investors having common objective with
a view to invest in various securities. Mutual funds may invest in variety ofinstruments
like stocks, bonds, money market securities, gold or a combination of these which
provides diversification to your investments. These schemes are professionally managed
on behalf of the investors to help them attain their financial goals.
Benefits of Investing
- Professional Management of money
- Diversification to your Portfolio
- Low cost of investment due to economies of sale
- Well regulated
- Diversification to your Portfolio
- Highly Liquid in Nature
- No Entry Loads
SIP Investing Plan
One of the mechanisms of investing in Mutual Funds is through Systematic Investment
Plan (SIP) which enables you to prepare for your future by inculcating the idea
of disciplined investing which allows you to benefit from the powerful tool of rupee-cost
averaging & power of compounding. Systematic Investment Plans as one of the
tools of financial planning aims at wealth creation by investing small sums of money
at regular intervals over a period of time. SIP propagates the idea of investing
at an early stage in life that allows investors to seek their financial goal by
resting on pillars of discipline & consistency. SIP eliminate the human bias.
It encourages investments at all times, irrespective of the market levels. SIP
investments average out market volatility by a good measure.
Advantages of Investing in an SIP:
- Disciplined approach towards investing
- SIPS can be started even with the small amount of INR 500 or INR 1000.
- Through SIP, you cannot go wrong with the timing of investments due to continuity
of investments over a period of time.
- Road map to save for big events in life like child's education, child's marriage,
buying a house step by step.
- The thumb rule of compounding serves as effective tool for wealth creationby reaping
cumulative returns over the years.
- The principle of rupee-cost enables you to lower the average cost of investment.
These funds invest a maximum part of their corpus into equities holdings. The structure
of the fund may vary different for different schemes and the fund manager's outlook
on different stocks.
The Equity Funds are sub-classified depending upon their investment objective, as
- Diversified Equity Fund
- Mid Caps Fund
- Sector Specific Funds
- Tax Saving Funds (ELSS)
The objective of these Funds is to invest in debt papers. Government authorities,
private companies, banks and financial institutions are some of the major issuers
of debt papers. By investing in debt instruments, these funds ensure low risk and
provide stable income to the investors. Debt funds are further classified as:
- Gilt Funds: Invest their corpus in securities issued by Government,
popularly known as Government of India debt papers. These Funds carry zero Default
risk but are associated with Interest Rate risk. These schemes are safer as they
invest in papers backed by Government.
- Income Funds: Invest a major portion into various debt instruments
such as bonds, corporate debentures and Government securities.
- MIPs: Invests maximum of their total corpus in debt instruments
while they take minimum exposure in equities. It gets benefit of both equity and
debt market. These scheme ranks slightly high on the risk-return matrix when compared
with other debt schemes.
- Short Term Plans (STPs): Meant for investment horizon for three
to six months. These funds primarily invest in short term papers like Certificate
of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also
invested in corporate debentures.
- Liquid Funds: Also known as Money Market Schemes, These funds provides
easy liquidity and preservation of capital. These schemes invest in short-term instruments
like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are
meant for short-term cash management of corporate houses and are meant for an investment
horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are
considered to be the safest amongst all categories of mutual funds.
As the name suggest they, are a mix of both equity and debt funds. They invest in
both equities and fixed income securities, which are in line with pre-defined investment
objective of the scheme. These schemes aim to provide investors with the best of
both the worlds. Equity part provides growth and the debt part provides stability
Further the mutual funds can be broadly classified on the basis of investment parameter
viz, Each category of funds is backed by an investment philosophy, which is pre-defined
in the objectives of the fund. The investor can align his own investment needs with
the funds objective and invest accordingly.
By investment objective:
- Growth Schemes: Growth Schemes are also known as equity schemes.
The aim of these schemes is to provide capital appreciation over medium to long
term. These schemes normally invest a major part of their fund in equities and are
willing to bear short-term decline in value for possible future appreciation.
- Income Schemes:Income Schemes are also known as debt schemes. The
aim of these schemes is to provide regular and steady income to investors. These
schemes generally invest in fixed income securities such as bonds and corporate
debentures. Capital appreciation in such schemes may be limited.
- Balanced Schemes: Balanced Schemes aim to provide both growth and
income by periodically distributing a part of the income and capital gains they
earn. These schemes invest in both shares and fixed income securities, in the proportion
indicated in their offer documents (normally 50:50).
- Money Market Schemes: Money Market Schemes aim to provide easy
liquidity, preservation of capital and moderate income. These schemes generally
invest in safer, short-term instruments, such as treasury bills, certificates of
deposit, commercial paper and inter-bank call money.
- Tax Saving Schemes
Tax-saving schemes offer tax rebates to the investors under tax laws prescribed
from time to time. Under Sec.88 of the Income Tax Act, contributions made to any
Equity Linked Savings Scheme (ELSS) are eligible for rebate.
- Index Schemes: Index schemes attempt to replicate the performance
of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these
schemes will consist of only those stocks that constitute the index. The percentage
of each stock to the total holding will be identical to the stocks index weightage.
And hence, the returns from such schemes would be more or less equivalent to those
of the Index.
- Sector Specific Schemes: These are the funds/schemes which invest
in the securities of only those sectors or industries as specified in the offer
documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum
stocks, etc. The returns in these funds are dependent on the performance of the
respective sectors/industries. While these funds may give higher returns, they are
more risky compared to diversified funds. Investors need to keep a watch on the
performance of those sectors/industries and must exit at an appropriate time.
- Gold Fund: You can invest in gold as an asset class through gold
funds . Gold Funds are open-ended mutual fund schemes that invest in units of Gold
ETF. Like any other mutual fund scheme, investors can buy, sell, hold, and conduct
SIP/STP/SWP in these funds. This is also a very cost effective methods of investing
in gold as investors do not incur any charges for de-mat account or brokerage charges
and can accumulate through SIP. Another category of gold fund is Gold Sector Funds
i.e. the fund will invest in shares of companies engaged in gold mining and processing
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