Mutual Funds in India: What and How to Invest
Mutual funds are becoming popular day by day among the investors. Due to giving high returns and easy availability, they are being preferred for investment by the investors.
What are the Mutual Funds
A mutual fund is a fund for investment which is managed professionally by financial companies or institutions. It collects money from investors and invest that money into other places like company shares, stocks, bonds etc. A mutual is basically a tool for investing the money. The money collected from individuals is managed collectively in order to yield a high return.
There are various types of mutual funds. On the basis of their investments, they are categorized into many categories.
Type of Mutual Funds
Mutual funds are regularized and monitored by the Securities and Exchange Board of India (SEBI). As per SEBI, mutual funds are classified into following types:-
Equity Mutual Funds: These types of mutual funds invest directly in company shares or equity stocks. The return of these funds is totally based on the gain or loss of the stocks they are investing their money in. These funds are further classified into Large Cap Funds, Mid Cap Funds and Small Cap Funds. The class name identifies which capital types of companies the fund invest the money. For example, if a fund invest into the shares of the companies with large capital like TCS, HDFC etc.,it is know as Large Cap Fund. They give a very good return with a high risk. These funds are preferred by the investor who has a high risk appetite and wants to invest for a long time. The Mid Cap funds invest in the stocks of the companies with a middle level capital. The Small Cap Funds invest in small capital companies.
Debt Mutual Funds: These funds invest in debt securities like bonds, debentures. These types of funds are preferred for a short term investment goals with less risk as compared to the equity shares. These are considered as safer investment tools. They give a low return as compared to equity funds but they are safe to risk.
Hybrid or Balanced Funds: These funds are a mixture of equity funds and debt funds. These types of funds invest in both equity shares and debt securities in order to maintain a return percentage. The return percentage and risk factor of these funds lie between equity funds and debt funds. Balanced investors prefer these funds for a long time investment.
There are few more types of mutual funds like Sector Funds, Tax Saving Funds etc which are preferred for specific goals.
How to Invest in Mutual Funds
An investor can invest in mutual funds in two ways- Directly or through a SEBI registered advisor. If you invest directly, it will be invested in a direct plan of the fund. If you invest through an advisor, it will be invested in the regular plan of the fund.
If anyone wishes to invest in the mutual then there are following options for them:-
A. Invest through the registered advisor.
B. Invest Directly:-
1. Go to the nearest authorized branch of the fund with necessary documents or,
2. Visit the website of the fund and follow the given steps.