What is Mutual Fund

Still I get to know when i discuss with people regarding investment and wealth creation that many people do not have knowledge about mutual fund.

Many people have wrong information and many has insufficient knowledge regarding mutual funds.

With this article, I hope you will get complete knowledge about mutual fund. Also it will help you to invest your money in the right way to create your wealth in long run.

what is mutual fund

Mutual fund is an investment scheme related to investment in stocks, bonds and other securities. It is run by assets management company with professionally managing by market experts to manage the funds and investment properly.

Asset Management Company (AMC) brings together a group of people to make a pool for their mutual fund.

A mutual fund is a pool that brings together a group of investor and invests their money in stocks, bonds and other securities.

Each investor owns units known as NAV (Net Asset Value)which represent the portion of their investment holdings in the particular fund.

Any individual can directly invest in stocks, bonds or securities but with mutual fund they will get professional management of their investment under these funds.

Units can be purchased or redeemed as required by the investor from the fund house with current Net Asset Value.

Net Asset Value fluctuates according to the fund holdings and as per market condition. If holding stock prices goes up, NAVs value will go up.  If stock prices goes down, value of NAV goes down.

As an investor if you look on long time wealth creation, equity is the most attractive option to multiply your wealth in many folds. But if you do not have knowledge regarding stocks and market movement. You may loose your money. It is better to invest under advice of stock market professionals. Mutual fund is one of the good option if you want to manage your money with professional experts.

Mutual Funds are registered and regulated under SEBI. (Securities and Exchange Board of India).

SEBI ensures to function all the mutual funds under provision of strict regulations to protect the interest of investors.

Advantage of Investing in mutual fund

  • As an investor if you would like to invest in multiple stocks but you do not have sufficient funds to invest in all the individual stocks. You can invest in mutual funds, That accumulates the investment of many stocks with one unit as NAV.  You can purchase one unit, that will give taste of all the stocks holding under this mutual fund.
  • Through Mutual fund, you can invest under diversified portfolio to manage risk condition of different sectors etc.
  • The biggest advantage to invest with Mutual fund is you are getting very highly professional management of your money to leverage risk factors and to create wealth.
  • Investor can sell their units in any business day and can get the amount in his bank account in 2-5 days. If you are investing in ELSS or any other mutual fund where locking period is applicable. You can not withdraw during lock in period.
  • The Minimum investment in many good mutual fund is as low as Rs. 500.00

Tax benefits on Investment in Mutual Funds 

  • You will get 100% Income Tax exemption on all Mutual Fund dividends.
  • Equity Funds – Short term capital gains is taxable at 15%. Tax is not applicable in long term capital gain.
    Debt Funds – Short term capital gains is taxable as per the slab rates applicable to you. Long term capital gains taxable to be lower of – 10% on the capital gains. It is without factoring indexation benefit and 20% on the capital gains after factoring indexation benefit.

Types of Mutual Fund

There are different type of mutual fund and their investment objective is different as per fund types.

Fund Type Money will Invest in
Equity (Growth)  Only in Stocks.
Debt (Income)  Only in Fixed income securities.
Money Market  Money Market Instrument including government Securities.
Balanced  Partly in equities, debt or money market to balance the risk and return.

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