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Mutual Funds

Mutual Fund

MUTUAL FUNDS

Various types of Mutual Funds exist to cater to different needs of different people. Largely, they are of three types.

  1. Equity or Growth Funds
  • These invest predominantly in equities i.e. shares of companies
  • The primary objective is wealth creation or capital appreciation.
  • They have the potential to generate higher return and are best for long term investments.
  • Examples would be
    • “Large Cap” funds which invest predominantly in companies that run large established business
    • “Mid Cap” funds which invest in mid-sized companies.
    • “Small Cap” funds that invest in small sized companies
    • “Multi Cap” funds that invest in a mix of large, mid and small sized companies.
    • “Sector” funds that invest in companies that are related to one type of business. For e.g. Technology funds that invest only in technology companies
    • “Thematic” funds that invest in a common theme. For e.g. Infrastructure funds that invest in companies that will benefit from the growth in the infrastructure segment
    • Tax-Saving Funds
  1. Income or Bond or Fixed Income Funds
  • These invest in Fixed Income Securities, like Government Securities or Bonds, Commercial Papers and Debentures, Bank Certificates of Deposits and Money Market instruments like Treasury Bills, Commercial Paper, etc.
  • These are relatively safer investments and are suitable for Income Generation.
  • Examples would be Liquid, Short Term, Floating Rate, Corporate Debt, Dynamic Bond, Gilt Funds, etc.
  1. Hybrid Funds
  • These invest in both Equities and Fixed Income, thus offering the best of both, Growth Potential as well as Income Generation.
  • Examples would be Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans and Monthly Income Plans, etc.

Many of us dread the thought of managing our own investments. With a professional fund management company, people are put in charge of various functions based on their education, experience and skills.

As an investor, you can either manage your finances yourself, or hire a professional firm. You opt for the latter when:

  1. You do not know how to do the job best – many of us hire someone to file our income tax returns, or almost all of us get an architect to do our house.
  2. You do not have enough time or inclination. It’s like hiring drivers even though we know how to drive.
  3. When you are likely to save money by outsourcing the job instead of doing it yourself. Like going on a journey driving your own vehicle is far costlier than taking a train.
  4. You can spend your time for other activities of your choice / liking

Professional fund management is one of the best benefits of Mutual Funds.

What is an ELSS?

An ELSS is an Equity Linked Savings Scheme, that allows an individual or HUF a deduction from total income of up to Rs. 1.5 lacs under Sec 80C of Income Tax Act 1961.

Thus if an investor was to invest Rs. 50,000 in an ELSS, then this amount would be deducted from the total taxable income, thus reducing her tax burden.

These schemes have a lock-in period of three years from date of units allotment. After the lock-in period is over, the units are free to be redeemed or switched. ELSS offer both growth and dividend options. Investors can also invest through Systematic Investment Plans (SIP), and investments up to ₹ 1.5 lakhs, made in a financial year are eligible for tax deduction

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