Mutual funds are the pools of investments that collect money from various investors to invest in different varieties of stocks, bonds, or other securities. By diversifying their investments, they manage the potential risks and thus increase returns. This is the very reason why mutual funds have garnered immense popularity among Indian investors, as they are easily accessible, professionally managed, and carry a growth potential.
Types of Mutual Funds in India
There are various types of mutual funds in India, their investment objectives, and risk profile. Some of the common ones include:
- Equity Funds: The funds primarily invest in the stock of companies and, accordingly, aim for capital appreciation. Generally, they are considered riskier but have the potential to bring in better returns.
- Debt Funds: They invest in debt securities, which include government bonds, corporate bonds, and money market instruments. These funds have relatively lesser risks and are opted by investors for regular income.
- Hybrid Funds: These funds invest in both equity and debt securities thus holding a balance between risks and return.
- Index Funds: The cost of these funds is extremely low as they aim to replicate index performance. Normally, they follow a market index like Nifty 50 or the Sensex. Low-cost diversification forms their primary advantage and thus has frequently been used as a benchmark for other funds.
Factors Affecting Mutual Fund Returns
Several factors influence mutual fund investment in India:
- Market Performance: This involves the overall performance of the equity markets or the particular industries in which the fund is invested.
- The expertise of a Fund Manager: The experience and skills of the fund manager may influence the performance of the fund.
- Investment Philosophy of a Fund: The investment philosophy and approach followed by the fund affect its performance.
- Expense Ratio: The expense ratio charged by the fund consists of its fees and thus reduces the performance of the fund.
Returns from Mutual Funds in India
The returns from mutual funds in India tend to vary from fund to fund, market conditions, and the performance of the fund manager. What is evident and documented is historical evidence which shows the equity fund has the potential for offering a higher return along with higher risks than debt funds. By comparison, debt funds generally retain stable returns with lower risks.
Best tax saving plans
Mutual funds are one good means through which some of the taxes can be saved under various tax-saving schemes prevalent in India. Some of the popular ones include:
- Equities Linked Savings Schemes (ELSS) Investment into more equity stocks and offering tax deduction of up to ₹1.5 lakh under Section 80C of the Income Tax Act.
- Tax-Saving Fixed Income Funds These investments are made into debt securities and thus, generate tax benefits under Section 80C.
Best investment advisor
A good investment advisor can maximize the returns from mutual funds. Consider an advisor who possesses the following experience and qualifications:
- Track record and Qualifications: A qualified adviser with performance experience can guide you.
- Alignment of Interests: An adviser whose interests will be aligned with yours and will not incentivized to sell you particular products.
- Transparent Fees: Understand how much the adviser makes in his fees and whether he’s receiving a decent payment.
Conclusion
A mutual fund is a diversified and convenient way of investing in the Indian market. For an informed decision on investment, knowledge about different types of funds, factors that affect returns, and tax-saving benefits shall be helpful. An individual can get in touch with a qualified investment advisor to establish a well-defined personal investment plan matched to their financial goals and risk tolerance.
