Mutual Funds

How do Mutual Funds work?

A mutual fund is formed when an asset management company (AMC) pools investments from various individual and institutional investors with common investment objectives. A fund manager professionally manages the pooled investment by strategically investing in capital assets to generate maximum returns for the investors. Fund managers are professionals in the field of finance with an excellent track record of managing investments and have an in-depth understanding of markets. The fund houses charge expense ratio, which is the annual maintenance fee to manage investments of individuals. The investors make money through regular dividends/interest and capital gains. They can either choose to reinvest the capital gains via a growth option or earn a steady income by way of a dividend option.

Why should you invest in Mutual Funds?

Convenience

Investing in Mutual Funds is a paperless and straightforward process. Investors can monitor the market and make investments as per their requirements. Moreover, switching between funds and portfolio rebalancing helps to keep returns in line with expectations.

Low initial investment

You can have a diversified mutual fund portfolio by investing as low as Rs 500 a month. You also have the option to invest either as a lump sum or a systematic investment plan (SIP). However, when compared to lump sum investments, a SIP is capable of lowering the overall cost of investment while unleashing the power of compounding.

Tax-saving

Section 80C provides tax deductions on specific financial instruments, and mutual fund is one of them. Equity Linked Savings Scheme (ELSS) has become a popular tax-saving option for Indians in the last few years, owing to its higher returns and the shortest lock-in period of three years among all Section 80C options.

Professional fund management

In mutual funds, your money is managed by a professional fund manager who is backed by a team of researchers. The fund manager formulates the investment strategy for your asset allocation. He/she will have real-time access to the financial environment and adjusts your mutual fund portfolio accordingly.