Your 101 Guide To Mutual Funds

Indian women are famous for saving a part of their domestic funds by stashing it away in their cupboards. Over time they started depositing these savings in Banks and Post Offices instead (in the form of Fixed Deposits and Recurring Deposits) as they would get interest on these deposits.

InflationIn the 80’s and 90’s the interest earned from these deposits were pretty attractive, because the returns would beat inflation. But over the years the gap between the interest rates in banks and inflation started getting narrower, making bank deposits unattractive. With mass awareness programs by the Government, SEBI and Mutual Funds people realized that there are other ways to invest their money. They shifted their FDs and RDs to mutual funds in order to earn better returns and fight inflation.

1.) What are Mutual Funds?

A mutual fund is a professionally managed trust, which is made up by collecting funds from various investors, for the purpose of investing in stocks, company fixed deposits, bonds and similar assets.

Various kinds of mutual funds depending on the type of investor you are:

1. Equity Funds:  For aggressive investors 

In this the funds are invested only in stocks with the sole purpose of wealth creation. They are also the riskiest of all as they are completely dependent on the stock markets. This is for those investors who want to invest in the stock markets but do not have knowledge and expertise to do so.

2. Balanced Funds: For safe investors.

Here the funds are invested in stocks and in bank FDs, corporate FDs, government bonds etc. It is basically a combination of equity and debt.

3. Income Funds: For investors who want regular income

Example: Post office monthly income plans. Here most of the funds are invested in debt instruments and 15-20% is invested in stocks.

4. Money Market Funds: For the short term investors                                                      

Here the funds are invested for short term, and only in government bonds. They are safest of all but the returns are less compared to other schemes.


2.) How to start investing in Mutual Funds?

1. The first thing a person needs to do before investing in mutual funds is fulfilling the ‘Know Your Customer (KYC)’ requirement, which is mandatory. The documents required are PAN card, address proof and one photograph.

2. Select a good financial advisor who can guide you with the process of choosing a suitable mutual fund scheme. Explain your goals and risk capacity to the advisor for better selection of funds.

3. Investing in mutual fund can start with amount as low as Rs.5000/- for a lump sum investment or Rs.500/- for a monthly SIP.

4. Money from mutual fund open ended scheme can be withdrawn any day of the week.

3.) What are SIPS?

1. SIP means ‘Systematic Investment Plan’ offered by Mutual Funds. They are like Postimages (1) Office Recurring Deposits or Bank Recurring Deposits.

2. A fixed pre-decided amount is transferred from your bank account on a monthly basis to your mutual fund scheme for a stipulated period.

3. SIP is advantageous because it helps you create wealth by investing a small sum of money every month, over a period of time in a disciplined manner.

4. SIP can be for an amount as low as Rs.500/- per month.

4.) Why should women invest in Mutual Funds?Magic of Mutual Funds

1. Women should look for investment options other than bank FDs and post office, which can help them grow their money instead of just saving it.

2. Mutual Funds give better returns than FDs, and are less risky than stocks. For direct investment in stocks, one needs to be well-versed with the stock markets and regularly track it. Instead, investing in mutual funds can be easy and safe, as you are entrusting your money into the hands of people who are professional in handling and growing the funds.

3. All FDs and RDs attract tax on investment, whereas most of the mutual fund investments are tax free.


Any questions for Tanvi, comment and let us know.


Managed by MissManage Editorial

Written by Tanvi Parikh

Tanvi Parikh is an Investment Management graduate who has been managing finances for her friends and family for the past 7 years.


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