Invest in Mutual Funds

What are Mutual Funds?

As an investor, you may have come across the term mutual funds at regular intervals but, if you are wondering what are mutual funds, we have the answer for you. Offered by asset management companies, mutual funds are pooled investment vehicles which park their corpus in a variety of asset classes, based on their underlying structures and management principles.

Types of Mutual Funds

There are various types of mutual funds available in the market, and these can be categorised based on their composition and investment style. If you want to invest in mutual funds, the following are your major options. You can invest in mutual funds online, once you choose your pick from these different types of mutual funds –

Equity Funds:These funds cater to different types of investors, based on their investor profiles and risk appetites. Equity funds may invest in small, mid or large cap companies, and can have different investment approaches such as aggressive, income-oriented, and value-based strategies. Debt funds: Such schemes invest in instruments that offer a fixed return on investment, such as government or corporate bonds, and are also known as bond funds. These are bought at a low value and sold at a profit. While they can potentially offer compelling returns, they are not entirely risk-free. Government securities are safer than corporate bonds, and the level of risk depends on the type of bond invested in. Target maturity funds, a type of debt fund, has gained great popularity in recent days.
Index Funds: These schemes invest their corpus in stocks that form part of an entire index, such as the Nifty. The idea behind this strategy revolves around the fact that it is difficult to consistently beat the market. Index funds help investors benefit from market movements, which end up being positive over the long run. Index fund investments require less research and are often more predictable. They are passively managed and have a low expense ratio.
Hybrid Funds: Also known as balanced funds, these schemes consist of different securities like stocks, bonds, and money market instruments, and are aimed at reducing risk while maximising potential returns. These are also known as asset allocation funds and can have a specific allocation strategy or a more dynamic allocation to yield higher returns.
ELSS Mutual Funds: Equity-Linked Savings Schemes are mutual fund investments which offer investors tax deduction under Section 80C of the Income Tax Act, up to a maximum investment limit of 1.5 lakh rupees. These schemes mostly invest in the stock market and pose a certain amount of risk.
International Funds: These schemes invest in stocks from outside the investor's country. International funds invest in foreign stocks, while global funds, another popular type of mutual funds, invest in stocks from across the world, including the investor's home country. Leveraging international and global funds can help you create a more balanced portfolio and reduce risk optimally.
Exchange Traded Funds: ETFs are investment vehicles which employ strategies similar to mutual funds but are structured as investment trusts traded on the stock exchange. They offer added features like being bought and sold at any time, sold short, and purchased on margin. They are more effective, liquid and enjoy tax benefits. They are passive funds and have a low expense ratio, making them attractive for long-term investors keen on realising gains in line with the market.

How do Mutual Funds work?

If you are wondering how does mutual fund investment work, here is a quick primer for you -

Mutual fund investments are similar to stock market investments. Purchasing shares of a company means buying a small fraction of ownership in the company. When investors buy shares or units of a mutual fund, they are getting partial ownership of the investment company and its financial assets. This means that mutual funds function as both investments and actual companies engaged in financial investment.

So, how does investing in mutual funds work, in terms of returns? Investors earn returns from mutual funds in three primary ways. Firstly, the stocks in the portfolio provide dividends, and bonds generate interest. Secondly, during distribution, investors are given the option to withdraw their earnings or reinvest them in more shares. Thirdly, if the securities in the fund are sold at a higher price, it results in a capital gain for the investor. If the value of the fund holdings increases, but the financial manager does not sell them, the unit prices increase and can be sold for a profit in the market.

At a mutual fund, the AMC and the financial managers are legally obligated to work in your best interest. Most mutual funds have a number of employees who are focused on enabling bright outcomes for investors, including the manager, a research analyst, an accountant, and a compliance officer.

Why invest in Mutual Funds?

Investors often wonder why to h1invest in mutual funds. Investing in mutual funds has a variety of benefits, especially for small or medium individual investors. Following are some reasons why you should invest in mutual funds –

• Mutual fund investments are comparatively safer because they are regulated by boards such as SEBI and AMFI.
• Such investments enable retail participants to partake in the growth of the market, without needing to commit a large corpus
• MFs offer diversification based on their underlying composition, making it easier to balance risk and maximise returns.
• Mutual funds are professionally managed and allow your portfolio to enjoy professional stewardship, without paying a large fee.
• You can pick from a variety of investment options, in line with your risk appetite, return requirements, time horizon and investment objectives.
• MFs offer absolute transparency and help you enjoy the power of compounding, especially over the longer term.

Know what are the Advantages of Mutual Funds

There are many advantages of mutual funds. If you are wondering what are the benefits of a mutual fund, these are the aspects you should know about –

• Diversification: One of the main benefits of mutual fund investments is portfolio diversification. Mutual funds offer a diverse mix of assets, which helps to reduce overall risk, while fostering a well-rounded portfolio with good returns. Diversified portfolios include a range of securities with different capitalizations, industries, and bonds with varied maturities and issuers. This aspect also brings into focus the economy of scale, since investors can build diversified portfolios, by paying a single fee. This would not be possible when investing directly in the market.
• Ease of Access: Mutual funds are easy to buy and sell, especially when traded on major stock exchanges. They are highly liquid investments and also provide the easiest way to invest in certain assets, such as foreign equities, thus enabling investors to grow their principal in a sustainable manner.
• Transparent instrument: Asset management companies are regulated by SEBI and AMFI, and they are required to share their holdings on their websites, ensuring absolute transparency in their dealings.
• Professional Fund Managers: Mutual funds can be either active or passive, depending on their management. However, both these types of funds are designed in line with the expert opinions of professional fund managers. Choosing an active fund will allow your portfolio to flourish under the guidance of skilled professionals, at a comparatively low fee. They also monitor your portfolios round-the-clock and undertake extensive research to make the best calls.

Know what are the Disadvantages of Mutual Funds

As with every investment option, there are some cons to mutual funds too. Disadvantages of mutual funds include the following –

• Fluctuation in Returns: Investors should know that mutual funds do not assure a fixed return and the value of the investment may decrease. The price of the mutual fund is influenced by the stock market, so they react accordingly.
• Potentially High Costs: When you invest in active funds, which are managed by professional fund managers, you will be charged a management fee and transaction fees. These costs are incurred irrespective of the fund's performance, leading to high expenses for investors.
• Ineffective Diversification: A mutual fund may hold too many complex assets or not enough, leading to excessive risk or inadequate diversification. It can be challenging for investors to determine the right mix of assets to achieve their investment goals.
• Mismanagement of Funds: In active funds, the management calls are taken by fund managers. However, these managers are also human, and may have a lapse in judgement, which may cause your portfolio to suffer.
• Taxation Issues: When mutual fund shares are sold, capital gains taxes may apply, depending on the underlying structure and time duration, reducing the returns for investors.

How to calculate Mutual Fund returns on Edelweiss MF

A common query in the minds of investors revolves around mutual fund returns. Calculating returns on Edelweiss Mutual Funds is extremely simple and convenient. You can simply visit our website, go to the mutual fund returns calculator and insert the required values. You will receive instant and accurate results at the click of a button.

How should beginners invest in Mutual Funds?

Here is your simple guide to investing in mutual funds –

• Evaluate your investor profile and understand your risk appetite, return requirements, time horizon and investment goals
• Pick mutual funds which are aligned with your profile and tax requirements, then decide on the investment amount and route
• Ensure optimal diversification in a slow and steady manner
• Stay invested for the longer-term
• Recalibrate your portfolio at regular intervals

An investor education initiative by Edelweiss Mutual Fund.

All Mutual Fund Investors have to go through a one-time KYC process. Investors should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS. READ ALL SCHEME RELATED DOCUMENTS CAREFULLY

Invest in Mutual Funds

What are Mutual Funds?

As an investor, you may have come across the term mutual funds at regular intervals but, if you are wondering what are mutual funds, we have the answer for you. Offered by asset management companies, mutual funds are pooled investment vehicles which park their corpus in a variety of asset classes, based on their underlying structures and management principles.

Types of Mutual Funds

There are various types of mutual funds available in the market, and these can be categorised based on their composition and investment style. If you want to invest in mutual funds, the following are your major options. You can invest in mutual funds online, once you choose your pick from these different types of mutual funds –

Equity Funds:These funds cater to different types of investors, based on their investor profiles and risk appetites. Equity funds may invest in small, mid or large cap companies, and can have different investment approaches such as aggressive, income-oriented, and value-based strategies. Debt funds: Such schemes invest ......