Mutual fund is nothing but collection of stocks or bonds that a professional Fund Manager buys on behalf of you. Fund Manager decides which stock or bond to buy and how much. A mutual fund then distributes the entire investment amount in small units (called units). Investors can buy these units instead of buying stocks directly.
Mutual funds are one of the best investments available to retail consumers as they are easy to understand and invest in, are cost-effective, don’t require huge capital, are professionally managed, and enable the unit holder to enjoy the benefits of diversification.
There are 20K+ mutual fund schemes.
Open: You invest and redeem anytime. Most popular.
Closed: You invest only during the start and redeem when its tenure ends.
Interval: You can invest or redeem only some pre-defined dates
Broadly, there are 4 types of mutual funds based on the investment by them.
Equity: Invest in equity they are risky but provide high return
Debt: Invest in bonds (give interest) issued by the government, banks, and corporates. They are safe but provide low returns.
Hybrid: Invest in both equity and bonds, they have moderate risk and provide moderate returns.
Others: Invest in gold, real-estate, commodities, etc.
They are also of moderate risk and provide moderate returns.
You can invest in mutual
funds either as lumpsum / one time investment or as SIP (Systematic Investment Plans).
You can also invest in Equality Linked Saving Schemes (ELSS) to get tax benefit under
80C. ELSS generally have a locking period of 3 years.
Long term investments in mutual
funds provide additional tax advantages on returns compared to fixed deposits.
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