There are numerous ways of investing one’s capital, but none as famous as mutual fund investments in India. A mutual fund is a pooled investment instrument that collects money from various investors and invests it in securities such as equities, bonds, money market instruments, etc.
Every person who invests in a mutual fund owns units of the fund. A mutual fund’s NAV (Net Asset Value) is the fund’s per-share market value. The NAV is the price at which a mutual fund’s shares are bought and sold. The NAV of a fund is derived by dividing the market value of securities of a scheme by the total number of units of the scheme on any particular dateIt is declared at the end of every trading day after the closure of markets.
Types of mutual funds in India
Mutual fund companies divide mutual funds based on structure and asset class. Here are the various kinds of mutual funds based on their structure.
- Open-ended mutual funds: Open-ended mutual funds have no limits onwhenan investor can invest in the fund.
- Close-ended mutual funds: Close-ended mutual funds allow investors to purchase units only during the New FundOffer (NFO) period. These units can be redeemed at a fixed date of maturity.
- Interval funds: Interval funds get opened for the purchase/redemptionofunits at different intervals during the fund’s tenure. Hence, they have the features of both open-ended and close-ended funds.
Based on their asset class, mutual funds can be divided into four types.
- Equity funds: Equity mutual funds invest in stocks. These funds are risky but can provide high returns.
- Debt funds: Debt mutual funds invest in debentures, fixed income assets, and government bonds. They are low-risk investments that may provide better returns than a savings account or fixed deposit.
- Hybrid funds: Hybrid mutual funds invest in a mix of asset classes. Hybrid funds balance risk and returns by maintaining a proportion of equity and debt investments.
How to invest in mutual funds?
Follow these steps to invest in a mutual fund scheme:
- Risk profiling: Assess your risk-taking ability. This involves identifying the kind of investment vehicle you wish to invest in, including its risks.
- Asset allocation: As the next step, you must look to divide your capital into various asset classes. Asset allocation must be a mix of equity and debt instruments to balance the risks.
- Identification of funds: After dividing your capital into assets, you must identify the funds belonging to each asset class in which you wish to invest your capital.
- Consider a mutual fund SIPcalculator: A mutual fund SIP(Systematic Investment Plan) calculator can help you estimate the size of the corpus that you can have via regular mutual fund investments.
- Invest online or offline: Once you have gone through these steps, you can invest in the mutual fund scheme of your choice, either online or offline.
To sum up
A mutual fund scheme is a pooled investment strategy that helps you invest in various assets, including equity, debt, or a combination of both. The price of a unit of a mutual fund scheme, called its NAV, is decided at the end of a trading day. Before investing in a mutual fund scheme, you must assess your overall risk-taking ability, identify the fund you wish to invest in, and consult a mutual fund SIP calculator.