Mutual Funds Best guide for Indian Market in 2020 ~ Health Policy

What are mutual funds?

A mutual fund is a company that receives money from many investors and invests money in securities such as stocks, bonds and short-term debt. The combined holdings of a mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents the ownership of an investor in the fund and the income generated from it.

Why do people buy mutual funds?

Mutual funds are a popular choice among investors as they generally provide the following features:

Professional management:

The fund manager does research for you. They select securities and monitor performance.

Diversification:

"Do not put all your eggs in one basket." Mutual funds typically invest in many companies and industries. It helps reduce your risk if a company fails.

Affordability.

Most mutual funds set a relatively small dollar amount for initial investment and subsequent purchase.

Liquidity.

Mutual funds investors can easily redeem their shares at any time for the current net asset value (NAV) and any redemption charges.

What types of mutual funds are there?

Most mutual funds fall into four main categories - money market funds, bond funds, stock funds and target date funds. Each type has different characteristics, risks and rewards.

Money market funds

Carry relatively little risk. By law, they can invest only in certain high-quality, short-term investments issued by American corporations and in federal, state, and local governments.

Bond funds

They have a higher risk than money market funds because they typically produce higher returns. Because there are many different types of bonds, the risks and rewards of bond funds can vary dramatically.

Stock funds

Those invest in corporate shares. Not all stock funds are the same. some examples are:

Growth funds focus on stocks that cannot pay regular dividends, but have potential for above-average financial gains.
Income funds invest in stocks that pay regular dividends.
Index funds track a particular market index such as Standard and Poor 500 indexes.
Sector funds specialize in a particular industry segment.
The target date fund

It holds a mix of stocks, bonds, and other investments. Over time, the mix gradually changes according to the strategy of the fund. Target date funds, sometimes referred to as life cycle funds, are designed for individuals with special retirement dates.

What are the benefits and risks of mutual funds?

Mutual funds provide professional investment management and potential diversification. They also offer three ways to earn money:

Dividend Payout.

A fund can earn income from dividends on stocks or interest on bonds. The fund then pays shareholders almost all income, less expenses.

Capital gains distribution.

The price of securities in a fund may increase. When a fund sells an increased security in value, the fund has a capital gain. At the end of the year, the fund distributes these capital gains, reducing any capital losses to investors.

Increased NAV.

If the market value of a fund's portfolio increases, after spending cuts, then the value of the fund and its shares increase. A high NAV indicates the high value of your investment.
All funds bear some level of risk.
With mutual funds, you can lose some or all of the money you invested because the securities held by a fund can go down in value. Dividend or interest payments may also change as market conditions change.
A fund's past performance isn't as important as you would possibly think because past performance doesn't predict future returns. But past performance can tell you how volatile or stable a fund's duration is. The more volatile the fund is, the greater the investment risk.

How to buy and sell mutual funds?

Investors buy mutual fund shares from the fund or through a broker for the fund, rather than from other investors. The price that investors pay for a mutual fund is the net asset value per share of the fund and any fees charged at the time of purchase, such as the sales weight.
Mutual fund shares are "redeemable", meaning that investors can sell shares to the fund at any time. The fund usually needs to send payment to you within seven days.
Read the prospectus carefully before buying shares in mutual funds. The prospectus contains information on the investment objectives, risks, performance and expenses of the mutual fund. To know more about the key information in the prospectus, see How to Read Mutual Fund Prospectus Part 1, Part 2 and Part 3.

Understanding fees

Like any business, running a mutual fund involves a cost. The fund collects these costs to the investors by charging fees and expenses. Fees and expenses vary from fund to fund. A high cost fund should outperform a low cost fund to generate the same return for you.
Even small differences in fees can also mean large differences in returns during timing. For example, if you invested 7,33,754 INR in a fund with a 10% annual return, and an annual operating expense of 1.5%, then after 20 years you would have about 36,48,591 INR. If you invested in a fund with the same performance and expenses of 0.5%, then after 20 years you would end up with 44,66,727 INR.
It takes only a few minutes to use a mutual fund cost calculator to see how the cost of various mutual funds decreases over time and eat into your returns. See mutual fund terminology for the types of fees.

Avoiding fraud

As a rule, each mutual fund is required to file a prospectus and regular shareholder report with the SEC. Before investing, be sure to read the prospectus and the required shareholder report. Additionally, the mutual fund's investment divisions are managed by separate entities, known as "investment advisors", who are registered with the SEC. Always make sure the investment adviser is registered before investing.

List of all Indian Mutual Funds:

There are 44 Asset Management Companies (AMCs) or mutual fund houses in India. These companies manage the investment of the investors so that they get optimum profit. Below we have provided a list of mutual fund houses in India:

Disclaimer

Mutual funds investment will be subject to market risks. Any mutual fund listed in the document does not guarantee fund performance or its inherent creditworthiness. Please read the mutual fund document thoroughly before investing. Specific investment needs and other factors must be taken into consideration when designing a mutual fund portfolio.
With effect from July 1, 2017, the applicable GST rate for all financial services is 18%.