Mutual Funds


Mutual Funds are an inexpensive and easy way for investment. It is an investment vehicle for retail investors who do not have either knowledge or time or both to invest their money in stocks, bonds, or other securities, and manage their investments through professional fund managers.

Benefits of investing in Mutual Fund

Small Investments
Mutual funds help investors reap the benefit of returns by a portfolio spread across a wide spectrum of companies with small investments. They can invest a small amount of money and at the same time own different stocks from different industries, sectors, and products available in the market.

Professional Fund Management
Professionals having considerable expertise, experience, and resources manage the pool of money collected by a mutual fund. They thoroughly assess the investment risks and growth; analyze the market and economy for good investment opportunities.

Spreading Risk
An investor with a limited amount of fund can invest in one or two stocks / bonds and run the risk of losing money. However, a mutual fund diversifies the investment by providing options for the investor to invest in various stocks and bonds thus reducing the investment risk.

Transparency and Interactivity
Mutual funds regularly provide investors information on the value of their investments through account statements. Investors can also access the relevant website to know the current status of their investments.

Close ended funds have their units listed in the stock exchange. They can be purchased and sold at their market value.

Mutual funds offer the investor a wide range of investment schemes. Investors can choose a scheme depending upon the risk and return profile.

All the mutual funds are registered with SEBI and they function within the provisions and regulations designed to protect the interests of the investor.

Types of Mutual Funds

Mutual funds are classified into various types based on the investment type, objective, and structure. A mutual fund can be an open-ended scheme or a close-ended scheme.

Open-ended Scheme
An open-ended mutual fund scheme is one that is always available for subscription and repurchase.

Close-ended Scheme
A close-ended mutual fund scheme has a stipulated maturity period. For example, the maturity period can be 5-7 years. The fund is open for subscription only for a specified period at the time of the launch of the scheme.

Equity Mutual Funds

Equity mutual funds are also known as stock mutual funds. Equity mutual funds invest money in the stocks of public companies. Stocks represent part ownership or equity in companies and the aim of stock ownership is to see the value of the companies increase over time. Since equity funds invest in stocks, they have the potential to generate more returns. On the other hand, they carry greater risks too such as capital amount loss.

Investment Objective
The objective of this scheme is to generate more capital growth from a portfolio consisting of equity and equity related instruments.

Benefits of the Scheme
This is a powerful tool for capital appreciation.Equity schemes are good for investors looking for long-term appreciation over a period of time. Equity funds can be classified into Diversified Equity and Sector Equity funds.

Diversified Equity Funds
These are equity mutual funds that invest in different sectors of the economy to diversify the risk.

Sector Equity Funds
These are special type of mutual funds that invest in stocks that fall into a certain sector of the economy. Here the portfolio is dispersed or spread across the stocks in a particular sector. This type of scheme is ideal for the investors who want to confine their risks and return to one particular sector.

Equity Linked Savings Scheme (ELSS)

Equity Linked Savings Scheme is designed for long term investment with a lock-in period of three years. This scheme is designed specifically for long term investors who can avail tax exemption under Section 80C. The investment philosophy helps investors build wealth over a long term with tax benefits.

Investment Objective
The objective of ELSS is to generate long term capital growth from a diversified portfolio of equity and equity related instruments with tax benefits to the investor.

Benefits of the Scheme
Tax Dedcution Under Section 80C
Under section 80C of the Income Tax Act 1961, an individual/Hindu Undivided Family (HUF) is entitled to a deduction from gross total income up to Rs.1 Lakh (along with other prescribed investments) for amounts invested in ELSS.
Long Term Investment
One of the tenets of successful equity investment is the ability to understand that companies grow over a long period of time. However, all companies face tough times, squeezed margins, lower profits, and crisis thus pressurizing fund managers to sell stocks which have sound fundamentals within a short period. The three year lock-in period in these schemes provides fund managers the flexibility to choose and buy sound fundamental stocks having long-term growth and remain invested.

Low Portfolio Turnover Ratio
Short-term pressures such as frequent redemptions force fund managers to sell their holdings. Every time a fund manager sells or buys some shares, the fund incurs costs such as payments to brokers and transaction charges. The three year lock-in period provides relief to fund managers from redemption pressures and helps them keep a low portfolio turnover ratio.

Systematically Save Tax
This scheme helps investors invest a small amount regularly every month through Systematic Investment Plan (SIP) to meet their tax-planning objectives and reap the benefits of rupee cost averaging.

Balanced Fund

Balanced funds are targeted towards investors looking for a mixture of safety, income, and modest capital appreciation.

Investment Objective
The objective of the balanced fund is to provide periodic returns and capital appreciation over a long period of time from a judicious mix of equity and debt investments and prevent or minimize capital erosion.

Balanced fund helps investors to invest in equity as well as debt instruments such as commercial papers, certificate of deposits, and treasury bills so that they get the growth potential of equity as well as stability of debt. This fund type is best suited for investors who want to benefit from the stock market but don’t have the volatility risk.

Benefits of the Scheme
The Balance fund scheme is ideal for all sorts of investors as part of asset allocation. It allows them to maintain an effective balance between debt and equity. Investors can enjoy the dual benefit from the power of equity (shares) and the stability of debt market instruments.

MIP (Monthly Income Plan)

MIP is a debt-oriented scheme that generally invests up to 75-80 % of its corpus in debt instruments and the remaining in equity instruments. They operate on the proposition of combining the power of equities with the stability of debt. As the name suggests, MIPs are intended to offer monthly income.

Investment Objective
The primary objective of MIP is to generate regular returns through investment primarily in debt oriented mutual fund schemes. The secondary objective of the scheme is to generate long-term capital appreciation by investing a portion of the scheme’s assets in equity oriented mutual fund schemes.

MIP aims to provide reasonable returns on a monthly basis through investment in debt as well as a small portion in equities. Investors can invest predominantly in interest yielding debt instruments such as (commercial paper, certificate of deposits, government securities, and treasury bills). The debt investments ensure stability and consistency while the equity instruments in the portfolio boost the returns. MIPs are market-linked (to the extent of their equity portfolio).

The ultimate aim of MIP is to provide investors with regular pay-outs through dividends. However, it is not mandatory for the mutual fund scheme to pay regular dividends as it is subject to the discretion of the fund house and availability of distributable surplus.

Benefits of the Plan
This plan is ideal for investors who want reasonable returns in the form of dividends through investments

Arbitrage Funds

Arbitrage funds help investors profit from price discrepancy of stocks and securities of the same asset in different market conditions. Investors can purchase securities, currencies, and commodities at a lower price and sell them immediately in another market at a higher price to gain profit.

Investment Objective
The objective of the arbitrage fund is to generate capital appreciation and income by investing in securities, currencies, and commodities and selling them based on market conditions.

Benefits of the Scheme
It is also an ideal investment vehicle for investors who want debt exposure, get tax-break of an equity investment, and skip the volatility of the equity market.

Debt Mutual Funds

These are funds which are invested in large portions in debt securities such as bonds issued by central and state governments, public sector organizations, public financial institutions, private sector companies, and short term instruments such as commercial papers, and certificates of deposits. Debt funds are less risky compared to equity funds.

Investment Objective
The objective of this fund is to generate steady and reasonable income with low risk and high level of liquidity.

Debt funds offer superior returns than fixed deposits at times, but they have an associated interest rate risk. If an investor holds a debt fund for more than a year, the investor can avail indexation benefit and reduce the tax liability further. Though fixed deposits provide guaranteed returns over a fixed term and have no associated interest rate risk, the interest earned is added to the income.

Benefits of this Scheme
The benefit of debt funds is that it offers steady income and relatively involves lower risk.

Liquid Funds

Liquid funds are generally investments made for a short term interest bearing securities with maturities of less than a year. It enables investors to hold their investments for very short term, say for a day or more. The investors pre-dominantly invest in money market instruments, treasury bills issued by government, certificate of deposits issued by banks, and commercial papers issued by companies. This type of fund has low-risk and low-volatility fund and aims at offering reasonable returns to investors looking for short-term surpluses.

Investment Objective
The objective of this scheme is to generate attractive returns consistent with capital preservation and liquidity.

Benefits of the Scheme
This scheme provides reasonable returns to investors with low-risk and low-volatility for short term.


SIP is for investors who do not have enough money but aim to build wealth over a long period and want a better future for themselves and their dependants. This plan helps investors to invest a small amount every month for a specific period. With SIP, investors can take advantage of the stock market fluctuations and get more units when the market is down and fewer units when the market is up.

Investment Objective
The objective of this scheme is to help investors invest a small amount every month and build wealth over a long period and have a better future for themselves and their dependants.

Benefits of the Plan
The SIP provides investors a way to invest in the fund of their choice in installments. It is a good and effective way of creating wealth for long term.

For example, if an investor plans to invest Rs.24,000/- in a fund but is not able to invest the entire amount immediately, through the SIP plan, the investor can contribute Rs.2000/- monthly for a year. At the end of the year, the investor would have invested Rs.24,000/- in the fund. When the NAV is high, the investor will get less number of units and when the NAV is low, the investor will get more number of units. Thus based on the NAV, the investor gets the benefit of averaging through SIP.

Investors can use this SIP facility in all the mutual fund schemes except liquid funds, cash funds, and for very short fixed return schemes.