Based on the interest of Investors / Traders, SEBI classified Mutual Funds into 3 main categories:
a) Equity; b) Hybrid and c) Debt - Key differences given in table format.
Apart from above, there are other types like Index Funds, ETFs, Children Funds, Retirement Funds, etc., which are not detailed here.
Fund Managers of particular MF scheme try their best to give good growth of fund by modifying the portfolio from time-to-time. Returns in MF scheme is based on the NAV (Net Asset Value) which fluctuate daily.
A Mutual fund scheme must diversify across assets and securities in the same asset class. This is essential to reduce the internal or unsystematic risks associated with investments.
Minimum Amount to Invest:
Lumpsum: Rs. 5000
SIP: Rs. 500 (Monthly Saving)
One must need an advise of a Financial Planner before you plan to save your hardened income to averse risk as per your future goal.
|
Key
Difference
|
EQUITY
|
HYBRID
|
DEBT
|
|
Portfolio
Allocation
|
95% -
99% in Equity Stocks; 1% - 5% in TREPS, Reverse Repo & Net Receivables.
|
50% -
75% in Equity Stocks; 25% to 50% in TREPS, other MF units, REIT, PTC,
FDs, etc.
|
100% in
T-Bills, GOI, CD, NCD & Bonds, CP, TREPS, etc.
|
|
Sub-Categories
|
Large
Cap, Mid Cap, Small Cap, ELSS, Focused, Sectorial, Flexi Cap, Value Fund,
etc.
|
Aggressive,
Conservative, Dynamic Allocation, Equity Savings, Arbitrage, Multi-Asset,
etc.
|
Overnight,
Liquid, Corporate, Floater, Credit Risk, Money Market, Low / Short / Medium /
Long Duration Funds, etc.
|
|
Risk
Type
|
High
|
Medium
|
Low /
almost negligible.
|
|
Minimum
Investment Duration
|
5 to 7
years
|
3 to 5
years
|
6 months
to 1 year.
|
|
Expected
Annual Returns (CAGR)
|
15% to
30% or more.
|
10% to
15%
|
3% to 9%
|
|
Suitable
for Investors
|
Higher
Returns in long term and can opt for SWP after 5 years for life-time income.
|
Known
for Monthly Dividend Income like regular Pension plan.
|
Best
Alternative to Bank Fixed Deposits / RDs.
|
|
Capital
Gains Tax
|
If sold
before 1 year from purchase date, short term capital gain tax is 15%. If sold
after 1 year from purchase date, long term capital gain tax is 10% only if
profit exceeds 1 lakh.
|
Similar
to Equity MFs.
|
If sold
before 3 years, then short term capital gain taxed at your effective income
tax rate. If sold after 3 years from purchase date, long term capital gain
tax which is lower of (a) 10% of profit or (b) 20% of profit adjusted after
indexation benefits.
|
Most Mutual Fund Schemes are Open-ended means you can withdraw / liquidate your money anytime, while few are Close-ended MFs for certain period of time such as ELSS (3 yrs.), Retirement (5 yrs.), Fixed Maturity Plans (5-7 yrs.), etc.
Few People are in wrong assumption that they should invest money in mutual funds when Stock markets going up/down which they base on NIFTY50 & SENSEX30.
In total, there are more than 8000 Stocks in Indian Secondary Market, out of which Fund Managers chose 30 to 100 stocks in portfolio list of single mutual fund scheme which includes Govt. Bonds to give Good Returns with less risk.
See last 7 years Annualized Avg. Returns of few selected Equity, Hybrid & Debt Mutual Funds (as of 21-FEB -2022):
If you want to more detail on Debt Schemes where they invest your money, then go through below post:
Your Money invested in Mutual Funds are very safe and can be hold as long as you want.
All Mutual Fund houses operate under stringent regulations to protect every investor’s money as policies made by SEBI (Securities and Exchange Board of India), a government agency responsible for the supervision and functioning of the capital markets.
Structure of Mutual Fund AMC (we have 40 now) must have - Sponsors, Board of Trustees, Custodian, etc.) to safeguard the investors interest.
Apart from this, SEBI issues certain guidelines from time to time for all fund houses and keeps their operations under its check. In case of discrepancies, there are various penal provisions which are applied on the fund houses.
AMFI (Association of Mutual Funds in India), on the other hand is a statutory body that addresses the grievances of mutual fund investors.
Both SEBI & AMFI together strive to keep the functioning of the industry transparent and ethical.
Mutual funds are not allowed to take any loans. Moreover, they are also restricted to hold cash only in scheduled banks, not in any other bank. And to ensure that the sponsors do not use investors funds to strengthen their other group companies, SEBI restricts a mutual fund to invest in a securities listed by an associate or group company of the sponsor.
Your Financial Advisor,
S. Koundinya
Mob: 07013965360.
NISM & NCFM Certified.
ARN-134715.
EUIN - E225283.
Hyderabad, India.
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