Mutual Funds are specifically defined and categorized by SEBI to mitigate risks that Traders or Investors are facing while buying one or two Stocks and to save time to go through fundamentals and balance sheets of Stocks.
Mutual Funds’ investment mainly protects your Capital / Principal amount against stock market fluctuations and assures best returns in long run.
Fund Managers of particular MF Scheme will do the job of choosing value based Stocks based on type of category scheme by forming a portfolio of group of Stocks (say 15 to 100) and Govt. Bonds in each Scheme. Thus reduce the risk of losing money and gain good returns as time progress.
Mutual Funds are categorized into following types both for Investors & Traders:
1) Equity MFs (High Risk suggested for Long Term say minimum of 4-5 years) will give 15% to 25% CAGR.
2) Hybrid MFs (Medium Risk, mostly known for Monthly Pension / Income (IDCW)) will give 10% to 15% CAGR.
3) Debt MFs (Low Risk and better alternative to Bank Fixed Deposits) will give 4% to 9% CAGR.
4) Fund of Funds [FoFs] mostly invest in Global ETFs/Stocks which will give 12% to 17% CAGR.
5) Index Funds (fixed portfolio of Stocks recommended for long term purpose say 7-8 years) will give 8% to 15% CAGR.
6) Others like Retirement funds, Children funds, Fixed Maturity Plans (FMP), etc.
Each above Category have 8 to 10 Sub-Categories which are chosen based on Financial Goals of Investors either to park your money in Short term or Long period.
19 Following Sub-Categories One should have in their Portfolio to face temporary market crisis and to achieve better Capital growth.
1) Flexi Cap Fund (Equity MFs)
2) Multi Cap Fund (Equity MFs)
3) ELSS Fund (Equity MFs)
4) Technology Fund (Sectorial MFs)
5) Pharma / Healthcare Fund (Thematic MFs)
6) Consumer Funds (Sectorial MFs)
7) Manufacture in India Fund (Thematic Fund)
8) Balanced Advantage Fund (Hybrid MFs)
9) Equity Savings Fund (Hybrid MFs)
10) Liquid Fund (Debt MFs)
11) Gilt Fund (Debt MFs)
12) Floater Fund (Debt MFs)
13) Gold / Silver Funds (FoFs)
14) Asset Allocator Fund (FoFs)
15) Housing Opportunities / Real Estate / REIT Funds
16) Nifty 50 Index Fund (Index MFs)
17) Sensex 30 Index Fund (Index MFs)
18) Midcap 150 Index Fund (Index MFs)
19) Smallcap 250 Index Fund (Index MFs)
Descriptions of above sub-categorical MF schemes have been briefed in my previous articles with examples. So, not detailing here.
Taxation in Mutual Funds:
For Equity & Hybrid MFs:
If sold after 1 year from purchase date, long term capital gain tax will be applicable. Current tax rate is 10%, if your total long term capital gain exceeds 1 lakh. Any cess/surcharge is not included. If sold before 1 year from purchase date, short term capital gain tax will be applicable. Current tax rate is 15%. Any cess/surcharge is not included in the 15%.
For Debt / FoFs MFs:
If sold after 3 years from purchase date, long term capital gain tax will be applicable. Current tax rate is the lower of (a) 10% of profit or (b) 20% of profit adjusted after indexation benefits. Any cess/surcharge is not included.|If sold before 3 years from purchase date, short term capital gain tax will be applicable. Any profit will be clubbed with your income and taxed at your effective tax rate.
But to know which mutual fund scheme to invest, one needs to have the guidance of certified Financial Advisor. You should not invest your money blindly by going through online recommendations in so and so sites, which will be very risky.
You can open MF account without Demat (No AMC) online without going through manual documentation process.
Contact me for more details.
Yours Financial Advisor,
(Since 2013)
S. Koundinya
Mob: 7013965360
NISM & NCFM Certified.
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