What is Mutual Fund?

What is Mutual Fund?

Quite simply, a mutual fund is a mediator that brings together a group of people and invests their money in stocks, bonds and other securities.

If investing products contributing items were pastries, mutual funds would be the mixed berry pie. Like a pie, a mutual fund is a gathering of various ingredients, or for this situation, for example, stocks and bonds held inside a single crust, or fund portfolio. When you purchase an offer of a mutual fund, you are basically purchasing a slice of that pie.

 

Similarly as a good slice of the pie has the same proportion of filling to crust from the entire pie, the same is true for shares of mutual funds. When you buy a mutual fund share, you’re purchasing an allocated offer of all the investments that make up your mutual fund’s pie. So if the store is 6 per cent Apple (ticker: AAPL) and 3 per cent Coca-Cola Co. (KO), your slice will likewise be 6 per cent Apple and 3 per cent Coca-Cola.3

What is an asset management company (AMC)?

Asset class can be seen a big basket where all the financial products belonging to that asset class share a common characteristics.

Read More: 

What are the benefits of investing in a mutual fund?

      Open end or Close Ended Mutual Funds : 

  • One way of classifying mutual funds can be close-ended and open-ended mutual funds. An open-ended mutual fund is open at all time for entry and exit. So one can invest in it anytime and can get out of it anytime. Whereas in a close ended mutual fund, there is a specified entry time and exit time and it comes with a duration. Large Cap, Mid Cap or Small Cap.

     Top Stocks Held By Fund Managers In Mutual Funds


            Stocks                                                            Market Value (Rs. Cr)

HDFC Bank                                                              46,952.15

Infosys                                                                      28,223.67

ICICI Bank                                                                26,860.65

State Bank of India                                                    22,442.21

Larsen & Toubro                                                        19,261.49

             ITC                                                                             18,968.08             

  Reliance Industries                                                    16,857.65   

Housing Development Finance Corporation              16,785.56

Kotak Mahindra Bank                                                 14,978.44

Maruti Suzuki India                                                     14,814.74


Types of mutual funds:

1. Equity Funds: Equity funds invest most of the money that they gather from investors into equity shares. These are high-risk schemes and investors can also make losses, since most of the money is parked into shares. These types of schemes are suitable for investors with an appetite for risk. Read more articles on Equity Funds.

 

2. Debt Funds: Debt funds invest most of their money into debt schemes including corporate debt, debt issued by banks, gilts and government securities. These types of funds are suitable for investors who are not willing to take risks. Returns are almost assured in these types of schemes. Read more articles about Debt funds.

3. Balanced funds: Balanced funds invest their money in equity as well as debt. They generally tend to skew the money more into equity than debt. The objective, in the end, is again to earn superior returns. Of course, they might alter their investment pattern based on market conditions. Read More articles on Balanced funds.

4. Money Market Mutual Funds: Money market mutual funds are also called Liquid funds. They invest a bulk of their money in safer short-term instruments like Certificates of Deposit, Treasury and Commercial Paper. Most of the investment is for a smaller duration.

5. Gilt Funds: Gilt Funds are perhaps the most secure instruments that are around. They invest the bulk of their money in government securities. Since they have the backing of the government they are considered the safest mutual fund units around. 

Active vs. passive

Passively managed funds invest as indicated by a pre-decided technique. They attempt to match the performance of a particular market record, and along these lines require little investment ability. Since these assets require little administration, they will carry lower fees than effectively managed funds.

Effectively managed funds look to beat market indices and convey the potential for greater return than passively managed funds. Be that as it may, they will surely carry greater fees and risk as well.

     What are the benefits of investing in a mutual fund?

  • Professional Money Management
  • Diversification
  • Liquidity
  • Affordability
  • Convenience
  • Flexibility and Variety
  • Low transaction cost 
  • Well regulated
  • Transparency 
  • Economies of Scale
  • Individual-Oriented
  • Tax benefits on Investment in Mutual Funds :

1) 100% Income Tax exemption on all Mutual Fund dividends.

2) Equity Funds – Short-term capital gains are taxed at 15%. Long-term capital gains are not applicable.

Debt Funds – Short-term capital gains are taxed as per the slab rates applicable to you. Long-term capital gains tax to be lower of – 10% on the capital gains without factoring indexation benefit and 20% on the capital gains after factoring indexation benefit.

3) Open-end funds with equity exposure of more than 65% (Revised from 50% to 65% in Budget 2006) are exempt from the payment of dividend tax for a period of 3 years from 1999-2000.

The downsides to mutual funds:

The main disadvantage to mutual funds is that, because the fund is managed, fees will be incurred no matter how the fund performs. Investors have to pay sales charges, annual fees, and other expenses with no guarantee of results. That said, most any method of investment will incur fees without a guarantee of results.

How do I earn money from mutual funds?

When you invest in a mutual fund, distributions come from three sources:

  • Divided payments: When a fund receives dividends or interest on the securities in its portfolio, it distributes a proportional amount of that income to its investors.
  • Capital gain: When a fund sells a security that has gone up in price, this is a capital gain. When a fund sells a security that has gone down in price, this is a capital loss. Most funds distribute any net capital gains to investors annually.
  • Net asset value: When the NAV of a fund increases, it increases the value of your shares. This is similar to when the price of a stock increases; you don’t receive immediate distributions, but your investment’s value is greater, and you will have made money should you decide to sell it.

When purchasing shares in a mutual fund, you can choose to receive your distributions directly, or have them reinvested in the fund.

How to Apply for Mutual Funds? 

If you are an investor who is looking at the much talked about mutual fund SIPs, there are many ways to apply to them. Apart from this, you can also visit directly through the website: www.gfswc.com. Remember, you need to comply with Know Your Customer Requirements before you apply. This is also known as KYC Requirement of Mutual Funds. You can also call 91-8010926281 for mutual funds, that we can provide you with all guidance on how to invest.

                                                                           

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