What is mutual fund and how to invest in mutual fund scheme?

A mutual fund collects money from investors and invests the money behalf of investors in shares and stocks markets. Mutual fund charges a little fee for managing the money.

Let’s try to explain mutual fund in a very easy way. Let’s suppose that you as an investor have no idea of shares and stocks markets. You need professional help and skill. All you should need to invest in a mutual fund scheme.

Types of Mutual Funds:

As per your future goals and your investment, Mutual fund give you the choice to invest you money across different resource classes like equity, debt and gold.

1. Equity Funds / Growth Funds

Funds that invest most of the money that they are collected from investors into equity shares are called equity/growth funds. Growth Funds are high risk mutual fund schemes and investors can make losses money because most of the money linked to the stock markets. These type of scheme are best suitable for investors who are investing own money for long-term growth.
There are different kinds of equity/growth funds such as Diversified funds, Sector specific funds, Tax saving and Index based funds.

A. Diversified Funds

These funds give you the advantage of diversification by investing in organizations spread across sectors and market capitalisation. They are generally meant for investors who look exposure over the market and do not want to restricted to any specific sector.

B. Sector Funds

These funds invest primarily in equity shares of organizations in a specific business area or industry. While these funds may give higher returns, they are more risky as compared to diversified funds. Investors need to timely keep a watch on the performance of those sectors/industries and should exit at a proper time.

C. Tax Saving Funds

These funds offer tax benefits to investors under the Income Tax Act, 2961. Opportunities provided under this scheme are in the form of tax rebates under section 80 C of the Income Tax Act, 1961. They are most suited for long investors looking for tax rebate and searching for long-term growth.

D. Index Funds

These funds invest money in the same pattern as famous securities exchange lists like CNX Nifty Index and S&P BSE Sensex.

2. Liquid Funds / Money Market Funds

These funds invest most of their money in safer short-term instruments like Certificates of Deposit, Treasury and Commercial Paper. They are ideal for Corporates, institutional investors and business houses who invest their money for very short time of periods.

3. Debt Fund / Fixed Income Funds

These Funds invest money into debt schemes including corporate debt, corporate bonds, debentures, government securities, debt issued by banks, commercial papers and other money market instruments. They are most suited for the medium to long-term investors who are averse to risk and looking regular and steady income. They are less risky than equity funds.

4. Balanced Funds

These funds invest money both in equity shares and debt (fixed income) instruments and these fund give both growth and regular income. these fund might alter their investment way based on market conditions. They are ideal for medium to long-term investors willing to take moderate risks.

5. Gilt Funds

These funds are the most secure fund compare to other funds because they invest most money in Central and State Government securities and are well suited for the medium to long-term investors who are averse to risk. Government securities have no default risk.

How to invest in mutual funds?

If you are an investors then you can directly invest in a mutual fund through the mutual fund websites. lots of mutual fund give the facilities to apply directly by simply register on their site and use the own login information for apply in mutual fund scheme.

In another way you can hire the services of a mutual fund advisor. If you are investing directly, you will invest in the direct plan of a mutual fund scheme. If you are investing through an advisor, you will invest in the regular plan of the mutual fund scheme.

Note: Before invest in the mutual fund scheme you should need to complete your KYC (Know Your Customer) information. This is mandatory before invest in mutual fund scheme.