What is a mutual fund? Mutual Fund Investment Plans: A Detailed Overview

What is a mutual fund? Mutual Fund Investment Plans: A Detailed Overview

Mutual funds in India bring a variety of investment schemes to meet different objectives and needs of investors. It offers investment options for all types of investors, be they risk-averse, high-risk or intermediate risk takers, there are various risks in mutual funds. Its minimum investment amount, i.e., dollar 500 per month, has attracted young people, students, housewives to start their investments in mutual funds. So, if you are new to mutual funds, you need to know about it.

✴️ What is a mutual fund?

Mutual funds are a pool of money offered by investors to buy securities. Invest in various securities like stocks, bonds, money market instruments, precious metals, commodities etc. Mutual funds are managed by professional fund managers, who decide how to invest money by keeping an eye on market movements.

Mutual funds in India are regulated by the Securities and Exchange Board of India (SEBI). All mutual fund guidelines, rules and regulations, policies are determined by SEBI. There are 36 mutual fund schemes introduced by SEBI to meet the diverse needs of investors.

✴️ Types of Mutual Fund Investment Plans

On October 6, 2017, SEBI passed a notice for reclassification of mutual funds in India. This is done to bring uniformity in the same schemes started by different mutual funds. SEBI wants to ensure that investors can compare, compare products and evaluate the various options already available. So investors can invest according to their needs, financial goals and risk

SEBI has classified mutual fund schemes into 5 broad categories and 36 sub-categories. These commands mutual fund houses to make changes in their current and future plans. Here, a list of different types of MF schemes in India.

 1. Equity mutual funds

Equity funds invest primarily in stocks. In other words, the money is invested in shares of various companies. These funds are high-risk, high-return funds, which means that the investor who can bear the risk prefers to invest only in equities. Let's different types

The fund will invest in companies falling under the first to 100th category in terms of full market capitalization. Large-cap funds invest in firms that have the potential to show steady growth and profit over the years, which in turn gives investors periodic stability. These stocks offer long-term stable returns.

The fund will invest in companies falling under 101st to 250th in terms of full market capitalization. From an investor's point of view, mid-cap investment periods should be longer than large-cap due to high volatility (or volatility) in stock prices.

Large and Mid-Cap Funds The Sebi has introduced a combo of large and mid-cap funds, which means that these schemes invest in large and medium-cap stocks. Here, the fund will invest at least 35 percent in central and large cap stocks.

Funding: Small-cap companies include startups or firms that are in the early stages of development with small incomes. The fund will invest in companies that fall under 251st company in terms of total market capitalization. Small-caps have a great potential to find value and can produce good returns. However, given the small size, the risks are very high, so the investment duration of small-caps is expected to be the highest.

Multi-Cap Fund: Also known as diversified funds, these invest in market capitalization, i.e., mostly in large-cap, mid-cap and small cap. They typically invest between 40-60% in large-cap stocks, 10-40% in mid-cap stocks and about 10% in small-cap stocks. When a diversified equity fund or multi-cap fund invests in market capitalization, the risks of equity still remain in the investment.

Equity Linked Savings Schemes (ELSS): These are equity mutual funds that protect your tax under qualitative tax exemption under Section 80C of the Income Tax Act. They offer two benefits of capital gains and tax benefits. ELSS plans come with a lock-in period of three years. At least 80 per cent of its total assets must be invested in equity.

Dividend Yield Fund: Dividend Yield Fund is where the fund manager digs up the fund portfolio according to the dividend yield strategy. The scheme is preferred by investors who prefer the concept of regular income as well as capital appreciation. These funds invest in companies that offer a high dividend yield strategy. The purpose of this fund is to buy good underlying businesses that pay regular dividends at attractive valuations. The scheme will invest at least 65 per cent of its total assets in equities, but in dividend yielding stocks.

Value funds: Value funds invest in companies that have fallen in favor but have good principles. The idea behind this is to select the stock that has been underpriced by the market. Value The investor looks for deals and chooses investments that have a lower value on factors such as income, net current assets and sales.

Contra Funds: Contra funds take a conflicting view on equities. It’s the opposite of the wind type investment style. The fund manager is underforming the stocks at the time, doing well in the long run on cheap valuations. The idea here is to buy property at a price lower than its original value in the long run. This is done with the assumption that the asset will settle down and return to its real value in the long run. , But not both.

Focused funds: Fixed funds consist of a mix of equity funds, i.e., large, medium, small or multi-cap stocks, but with a limited number of stocks. According to SEBI, a centralized fund can have a maximum of 30 stocks. These funds are allocated their holdings among a limited number of carefully modified securities. Fixed funds can invest at least 65% of their total assets in equity.

Sector Funds and Thematic Equity Funds: A sector fund is an equity scheme that invests in shares of companies that trade in a particular sector or industry, for example, a pharma fund will only invest in pharmaceutical companies. Thematic funds can be in a wide area with a fairly narrow focus, for example, media and entertainment. In this theme, one can invest in various companies in funding, online, media or broadcasting. The risk of theatrical funds is highest because there is virtually very little diversification. At least 80 per cent of the total assets of these schemes will be invested in a specific sector or theme.

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 2. Debt mutual funds

 These funds invest in fixed income instruments such as government securities, treasury bills, corporate bonds, etc. Debt funds are preferred for those who are looking for a steady income with relatively low risk, as they are comparatively less volatile than equity. Debt funds have 16 broad categories as follows

Overnight Funding: This is a debt plan that will invest in mature bonds in one day. In other words, investing in securities overnight with one day maturity. This is a safe option for investors who want to park money without worrying about risks and returns.

Liquid Funds: Liquid funds invest in short term money market instruments such as treasury bills, commercial papers, term deposits etc. They invest in securities that have a short maturity, usually less than 91 days. Liquid funds provide easy liquidity and are less volatile than other types of debt instruments. Also, liquid fund investment returns are better than that

Ultra Short Term Funds: Ultra short term funds invest in fixed income instruments with a Macaulay term of three to six months. Ultra-short-term funds help investors avoid interest rate risks and offer higher returns than liquid debt funds. McCall determines how long it will take for the period to repay the investment

Low Term Fund: The scheme will invest in debt and money market securities with a period of six months to 12 months.

Money Market Fund: Arterial Market Fund invests in many markets such as commercial / treasury bills, commercial papers, certificates of deposit and other instruments as directed by the Reserve Bank of India (RBI). These investments are a good option for risk-averse investors who want to earn good returns in the short term. The debt scheme will invest in money market instruments with a maturity of up to one year.

Short Term Funds: Short term funds mainly invest in commercial papers, certificates of deposit, money market instruments etc. during the Macaulay period of one to three years. They can provide higher returns than ultra-short-term and liquid funds but will be exposed to higher risks.

Medium Term Fund: The scheme will invest in debt and money market instruments with a Macaulay period of three to four years. These funds have average maturity which is longer than liquid, ultra-short and short term debt funds.

Medium to Long Term Fund: The scheme will invest in debt and money market instruments with a Macaulay period of four to seven years.

Long Term Funding: The scheme will invest in debt and money market instruments over a period of more than seven years.

Dynamic Bond Funds: Dynamic bond funds invest in fixed income securities with a variety of maturities. Here, the fund manager decides what interest they need to invest based on their interest rate outlook and their assumptions of future interest rate movements. Based on this decision, they invest in funds during various maturities of debt instruments. This mutual fund scheme is suitable for individuals who find puzzles in terms of interest rates. Such a person can rely on the point of view of fund managers to make money through dynamic bond funds.

Corporate Bond Funds: Corporate bond funds are primarily certificates of debt issued by major companies. These are issued as a way to raise money for businesses. The debt scheme invests primarily in top rated corporate bonds. The fund can invest at least 80 per cent of its total assets in high-rated corporate bonds. Corporate bond funds are a great option when it comes to good returns and low risk type investments. Investors can earn a regular income that is usually higher than the interest on your fixed deposit (FD).

Credit Risk Fund: This scheme will invest under high-rated corporate bonds. A credit risk fund should invest at least 65 percent of its assets under the highest rated instruments.

Banking and PSU Funds: The scheme mainly invests in debt and money market instruments which include securities issued by companies such as banks, public financial institutions, public sector undertakings. This option is considered to maintain maximum balance of liquidity, safety and yield.

Funding Applicable: The scheme invests in government securities declared by the RBI. Government-backed securities include G-Secs, Treasury Bills, etc. Because the papers are supported by the government, these schemes are relatively safe. Keep interest rate risks in their maturity profile, long-term funding applies. For example, the maturity of the scheme will be a risk of higher interest rates. The Gilt Fund will invest at least 80 per cent of its total assets in government securities.


Gilt Fund with 10-year continuous period: The scheme will invest in government securities with a maturity of 10 years. 15. The Gilt Fund will invest at least 80 per cent in government securities with a 10-year constant period.

Floater Fund: This loan scheme mainly invests in floating rate instruments, in which interest is paid in view of changing interest rates in the debt market. The floater fund will invest at least 65 percent of its total assets in floating rate instruments.

✴️  3. Hybrid Mutual Funds

 Hybrid funds act as a combination of equity and debt funds. This fund allows the investor to invest in equity and debt markets to some extent.

Conservative Hybrid Fund - The scheme will invest largely in debt instruments. About 75 to 90 per cent of their total assets will be invested in debt instruments and about 10 to 25 per cent in equity related instruments. The scheme has been dubbed as conservative because it is for people who are anti-risk. Investors who do not want to take more risk in their investment may choose to invest in this scheme.

Balanced Hybrid Fund - This fund will invest approximately 40-60% of its total assets in both debt and equity instruments. A beneficial factor balanced fund is that they provide equity comparable returns with less risk factor.

Aggressive Hybrid Fund - This fund will invest 65 to 85 per cent of its total assets in equity related instruments and about 20 to 35 per cent of its assets in debt instruments. Mutual fund houses can offer either a balanced hybrid or an aggressive hybrid fund, not both.

Dynamic Asset Allocation or Balanced Benefit Fund- This scheme will dynamically manage their investments in equity and debt instruments. These funds increase debt allocation and reduce weightage in equities when they become expensive in the market. Also, these funds focus on providing stability at low risk.

Multi Asset Allocation- The scheme can invest in three asset classes, which means they can invest in additional asset classes other than equity and debt. The fund should invest at least 10 per cent in each asset class. Foreign securities will not be treated as a separate asset class.

Arbitrage Fund - This fund will follow the arbitrage strategy and invest 65% of its assets in equity related instruments. Arbitrage funds are mutual funds that differentiate between the cash market and the derivatives market in order to generate mutual fund returns. The returns generated by an arbitrage fund are based on the volatility of the stock market. Arbitrage mutual funds are hybrids in nature and in times of high or constant volatility, these funds offer relatively risky returns to investors.

Equity Savings - The scheme will invest in equity, arbitrage and debt. Equity savings will invest at least 65 percent of total assets in stocks and at least 10 percent in debt. This scheme states the minimum hedged and unheaded investments in the scheme information document.

 4. Solution Oriented Schemes

Retirement Fund - This is a retirement solution oriented scheme which will be locked-in till the age of five years or retirement.

Children's Fund - This is a child-oriented scheme that should be lock-on for five years or until the child reaches the age of majority, whichever is earlier.

 5. Other plans

Index Funds / ETFs - These funds invest their stocks in stocks that form part of a specific index. In other words, these schemes mimic the performance of the index. These schemes are designed to track the returns of a specific market index. These plans can be purchased either as mutual funds or as Exchange Traded Funds (ETFs). Also known as index tracker funds, the funds of these schemes are invested in equal proportions in that index. As a result, whenever individuals purchase units of index funds, they indirectly hold shares in a portfolio that contains certain index instruments. The fund can invest at least 95% of its total assets in certain index securities.

FOF (Overseas Domestic) Mutual Fund Investment is referred to as its accumulated pool of funds in its second mutual fund (one or more). Investors in their portfolios come in contact with different funds and keep track of them separately. However, investing in multi-manager mutual funds makes the process easier as investors only need to track one fund, which in turn has multiple mutual funds. The fund can invest at least 95 per cent of its total assets in the underlying fund.

✴️ Mutual fund investment options

 In SIP, investors can start investing only from INR 500 per month, and overall, from Rs 5000. If you are a first-time investor, you can use either an SIP calculator or a single amount calculator to pre-determine your investment before investing.

✴️ SIP Calculator

 When using the SIP calculator, you have to fill in some variables, including

  Desired investment duration
Estimated monthly SIP amount
Expected Inflation Rate for Years (Annual)
Long-term growth rate on investments

 Once you have fed the information mentioned above, the calculator will give you the amount you will receive (your SIP return) after the number of years specified. Your net profit will also be highlighted so that you can estimate based on its target fulfillment.

✴️ Lump Sum Calculator

 People who are new to investing find it difficult to understand the concept of a lumpum calculator and its operation. Therefore, to simplify the complexities, detailed information about the calculation is given. Go through this information to understand the process. The input data that needs to be fed into the lumpsum calculator includes

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  Term of Lumpsum Investment
An amount of money is invested through lumpsum mode
Expected rate of long-term return from equity markets
Expected annual inflation rate

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