Mutual Fund is a collective pool (hence the word mutual) of money given by investors with a common objective for purchasing securities (via the fund). The collective pool is formed by the investors in a Mutual Fund, they are regulated in India by the Securities and Exchange Board of India (SEBI). Those new to finance, planning, and investing often hear the term “Mutual Fund” and ask “what is a Mutual Fund?”, "which are the Best Mutual Funds?", "what are the types of Mutual Funds", "what are the companies?", "how to invest in Mutual Funds?" etc. Mutual Funds today are becoming more common with investors and have in recent years become an avenue by which investors can participate in the debt and equity markets.
How Mutual Funds work
Mutual Funds are a vehicle that collects money from investors to buy securities. These investors have a common objective, and this pool of money is advised by the fund manager who decides how to invest the money. With good fund management, the Mutual Fund manager (or Portfolio Manager) generates returns for the investors, which are passed back to investors. Mutual Funds are a regulated industry, there are various rules, guidelines & policies for the mutual fund companies, the fund managers, and specifically the funds being managed. These regulations are formed by the SEBI who is the regulator for Mutual Funds.
MUTUAL FUNDS: MINIMUM AMOUNT
Mutual funds offer investors a route to save money and earn returns over time. One can invest in a lump sum or a fixed amount monthly, more commonly known as a Systematic Investment Plan (SIP). Using a lump sum or SIPs, they inculcate the habit of savings. Investors can start investments with amounts as low as INR 5000 and in the case of SIPs as low as INR 500. There are various mutual fund calculators, available which help first-time investors decide what amount to start off with. These mutual fund calculators help investors kick-start investments.
Mutual Funds: Systematic Investment Plans (SIPs)
Mutual Funds offer a route called the "Systematic Investment Plan" or SIP where investors can choose to put in a fixed amount of money every month in a scheme of a mutual fund. SIPs are a very convenient way for investors to invest since after the first investment, subsequent investments are automated and the investor can sit back and relax. Systematic investment plans ( SIPs) also offer rupee cost averaging and there are many benefits of SIPs.
Mutual Fund: Types
They invest in equity and debt markets mainly. There are various types of mutual funds, equity funds which can be the large-cap funds, mid-cap funds, small-cap funds, or multi-cap, these are for investors wanting to take exposure to the equity markets. Then there are debt funds, which invest in debt instruments. For the investors in the middle who want to be on the fence, there are balanced funds or hybrid funds. Balanced funds invest both in equity and debt. Apart from these basic types, there are many other types, like liquid funds, ultra-short funds, short term, long term, Gilt, MIPs, etc.
Mutual Fund Companies
There are 44 Mutual Fund companies in India (called Asset Management Companies “AMCs”) that provide mutual fund schemes in which investors can invest. These Mutual Fund companies are regulated by SEBI. Many big companies with the likes of Reliance Mutual Fund, ICICI Prudential Mutual Fund, Birla Sunlife Mutual Fund, DSP Blackrock Mutual Fund, etc are in this business for many years and are established, players.
How to Invest in Mutual Funds
How to Invest in Mutual Funds? There are various avenues to invest, one can go directly to fund houses, also one can use the services of a broker or distributor or one can even use a financial advisor. There are many advantages of using the services of a distributor, instead of going to different AMCs, making the process cumbersome one can use a distributor who can help interact and do the purchases & redemptions with all of them and make the process easy for the investor. Today, investors can also make the purchase of mutual funds online and be sitting at home to complete the entire process.
Mutual Fund NAV
The industry is very transparent; funds are required to publish their prices daily. The price is known as the Net Asset Value (NAV). All mutual funds are required by SEBI to publish their NAVs daily. The NAVs are published on the websites of most AMCs as well as at the website of AMFI to ensure transparency.
Mutual Funds: Index Funds
Today, there are many index funds also available on the mutual fund platform. These are offered by various mutual fund companies. Other than index funds, there are various Exchange Traded Funds (ETFs) also available on the mutual fund platform. Nifty ETFs, Gold ETFs, etc to name a few are all available in the fund's form.
Best Mutual Funds
Investors are always searching for the top mutual funds or best mutual funds to invest in. How to select the best mutual fund is another exercise in itself. One needs to look at various things like the goal for investing, fund house, mutual fund rating, and over this follow a disciplined approach. Only then can one try and select the best mutual fund.
Mutual Funds Ratings
Mutual fund ratings today are provided by many players like CRISIL, ICRA, MorningStar, etc to name a few. Mutual fund ratings usually take in several quantitative as well as qualitative factors to arrive at the final rating. The Mutual Fund rating is a good starting point for an investor in selecting the scheme.
Today, mutual funds have become an important route for retail investors, and choosing the best fund is very important for investors. Investors should always do their bit of research in understanding which funds to invest in and choosing the right distributor/advisor to help them on this journey.
