What is mutual funds? - types of mutual funds | basic charges of mutual funds.

What is mutual funds? - types of mutual funds

       today in this blog you'll get to know about a brief information about mutual funds, types of mutual funds and the basic charges of mutual funds in the market where most of the peoples like to invest due to its returns providing capacity and the risk diversification factor. apart from that, these mutual funds also had a vast scope in the future as because of it's market demand and and the companies growth.

  • what is mutual funds?
  • types of mutual funds.
  • basic charges of mutual funds.
  • what is mutual fund?

      mutual fund is a medium which is used by banks or by financial institutions to raise funds to invest it directly into the stock market or into the government acquisitions in order to get good and stable returns to distribute it to the investors by charging a small amount on the returns gained. many investors don't have enough knowledge about the stock market and can't be able to invest directly because of lack of knowledge and fear of loosing money. and, because of the rising demand with scarcity of information these banks and financial institutions come up with the solution named as mutual fund. 

        mutual funds consist of set of stocks and government acquisitions like stocks of more than one companies and government bonds, corporate fixed deposit (fd's) & recurring deposit (rd's), etc. these mutual funds are managed by a professional and qualified fund manager who selects the stocks on the basis of the company financials, future prospects, work nature of company, etc. as all this investments are get invested in the stock market an investor may expect returns upto 15% to 20% by investing in high risk mutual funds, or can expect upto 8% to 10% of returns by investing in low risk mutual funds or no risk mutual funds. the fund managers select the stocks on the basis of various factors like the high market capitalization of company to create a blue chip mutual fund,low market capitalization companies to make a small cap mutual fund, etc.

        an investor can invest in mutual fund easily by choosing lumpsum or through systematic investment plans (sip) mode. in lumpsum mode of payment an investor can pay the total amount at a time that he wants to invest in the stock market and get the total units allocated into his demat ac after the order execution with the company. on the other hand in systematic investment plan (sip) mode the investor gets the authoriity to select the investment amount that he wants to invest on per month basis and just by selecting the date of sip one can start investing in mutual fund through sip and it is said to be one of the best option of investment as it also put the habit of investment in investors.

  • types of mutual funds.

    these mutual funds are majorly divided into three parts on the basis of  their return providing capacity and risk diversifying capacity. these mutual funds are termed as equity mutual funds, debt mutual funds and hybrid mutual funds.

  • equity mutual fund - 
       in equity mutual fund the complete amount of the investment is get invested in the stock market. the fund manager of the mutual fund selects more than one best companies with higher growth rate and some other factors to diversify and reduce the risk even after investing in the stock market, however the major reason of investing in the market is of getting higher returns even after bearing some losses. as investing in equity mutual fund provides expected returns upto 15% to 20% on an average in a financial year. however, sometimes this mutual funds can also gives even higher returns more than the expected returns. for an example, during the covid-19 period the whole stock market falls down to the average rate of 27.31% but it completely recovered within a year and along with that most of the mutual funds also provides extraordinary returns that is upto 35% to 40%. as the fund managers are professionals and well certified they do complete research about the company before investing in it to reduce the risk to a greater extent. however these mutual funds are also been created on the basis of the stock type, sector focused, etc

  • debt mutual fund - 
       in debt mutual fund the complete amount is invested in the government acquisitions like government bonds, corporate fd's & rd's, corporate securities, money market instruments, etc. investing in debt mutual fund is also known as fixed income instruments, for, where an investor can keep on receiving returns on a particular time of interval. mostly, the government securities pay debentures to its investors on half yearly basis. however investing in debt mutual fund also provides returns upto 8% to 10% on yearly basis but also sometimes it may vary due to some natural or artificial conditions. apart from these the investors of debt mutual funds also gets reward of tax benefits upto rs 1 lakhs under the long term capital gains, some mutual funds also gives the facility of equity linked saving scheme (elss) which is a three year lockin period scheme which is unbreakable before the lockin period which helps to keep amount invested atleast for three years in the scheme. apart form that the risk factor of these mutual fund is completely zero or may be in some fraction due to some different unnatuaral contingencies.

  • hybrid mutual fund - 
       hybrid mutual fund is the combination of both the equity mutual fund and the debt mutual fund. here the total fund amount is got divided in two parts and invested in the market. the division of the amount is not specified as there is no fixed ratio or proportion mentioned, the fund managers divides the amount and invest it according to their own will, here the risk factors are very low as this kind of mutual funds are also keep on getting fixed returns from corporate bonds so the investors of the hybrid mutual funds can expect returns upto 12% to 14% annually.

  • basic charges of mutual funds.

     the charges, expense ratio or exit load would vary from mutual fund to mutual fund. the average expense ratio of a mutual fund is around 0.81% to 0.85% inclusive of gst taxes,apart from that exit load of 1% would be levied to the total returned amount if it will be reedemed within 15 days. according to new rules a stamp duty of 0.005% will also be levied on the total investment from 1st july 2020. the tax implications says that returns are taxed at 15% if an investor reedem the amount before one year. and, after one year investors are required to pay long term capital gains (ltcg) tax of 10% on returns of rupees more than one lakh in a financial year.

(note - investment in mutual funds are subject to market risks please read the documents carefully before investing)

(disclaimer - all the information provided in the article are based on the facts available on google there is no personal opinion or suggesion provided by the author in the article)

Post a Comment