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Mutual Funds are a smart way to grow your money. They can help you achieve your financial goals as they have the potential to generate higher-than-inflation returns.Explore mutual funds
It is an investment vehicle where multiple investors come together and pool their funds. This pooled money is then invested by the fund manager across various asset classes including equity, debt, gold, and other securities to generate returns. The gains and losses incurred from such investments are divided among investors in the proportion of the share of investment.
To learn more about them, read our detailed guide on What are mutual funds.
One of the key benefits of investing in these funds is that your money is managed by professional money managers who have years of investing experience.
It is the ease of buying and selling an investment. Mutual Funds offer superior liquidity compared to some of the other instruments as you can buy and sell them anytime you want.
Like any investment product, the performance of these funds are measured in terms of the kind of returns they deliver. Historically, mutual fund returns have been higher than the returns delivered by other traditional investment options like Bank FDs, RDs, PPF, etc.
You can start your investments in these funds with as low as ₹ 500. Therefore, you don't need large sums to start investing.
As mutual funds invest in a basket of stocks, bonds, etc., you can own a diversified portfolio even with a small investment amount, this helps reduce risk as well.
Mutual fund schemes are regulated by the SEBI. The tight regulations ensure transparent processes and protect the investors' interests.
SIP allows you to invest a fixed sum at regular intervals. SIP is one of the most recommended ways to invest in mutual fund schemes as it is convenient. It also helps you average out the cost at which you buy the units of these funds. Read more about, What is Systematic Investment Plans (SIP)?
When you make a one-time investment, it is called lumpsum. Lumpsum investments are generally done when people have got a big sum of money like bonuses or payments from a sale of an asset.
Mutual funds in India are classified into different categories based on the asset class they invest in. Some popular categories are as follows.
Equity funds invest a majority of their assets in stocks. These funds are classified into different categories based on the market cap of the stocks they invest in.
These funds invest at least 80% of their assets in the top 100 companies by market capitalization.
These funds invest at least 65% of their assets in the next 150 (101st to 250th) companies ranked by market capitalization.
Such funds invest at least 65% of their assets in companies ranked 251 and above by market capitalization.
These funds invest at least 25% of their assets in each of the large, mid, and small-cap stocks.
|Top 5 Equity Mutual Funds||5Y Returns|
|Quant Tax Plan||23.64% p.a.||#1 in ELSS|
|Quant Active Fund||22.83% p.a.||#1 in Multi Cap|
|Canara Robeco Small Cap Fund||22.17% p.a.||#1 in Small Cap|
|PGIM India Midcap Opportunities Fund||21.31% p.a.||#1 in Mid Cap|
|SBI Contra Fund||15.81% p.a.||#1 in Value Oriented|
Debt funds generate returns by lending money to corporates and the government by buying their debt papers. These funds are classified into different categories based on their lending period and credit quality of the papers.
These funds generate returns by lending to companies or governments for up to 1 year.
These funds earn returns by lending mostly (at least 80%) to companies with the highest-rated debt papers.
These funds earn their returns by lending to companies or governments for one business day.
These funds generate their returns by lending to companies or governments for up to 91 days.
|Top 5 Debt Mutual Funds||5Y Returns |
|ICICI Prudential Medium Term Bond Fund||7.37% p.a.||#1 in Medium Duration|
|Axis Strategic Bond Fund||7.35% p.a.||#1 in Medium Duration|
|Axis Short Term Fund||7.24% p.a.||#1 in Short Duration|
|Axis Gilt Fund||6.93% p.a.||#1 in Gilt|
|HDFC Floating Rate Debt Fund||6.89% p.a.||#1 in Floater|
Hybrid funds invest in a mix of asset classes, including equity, debt, or gold. There are multiple categories of hybrid funds based on how much they allocate across different asset classes.
These funds have to invest at least 65% of their assets in equities while it can't exceed 80%. The rest goes into debt.
These funds can invest up to 40-60% in both equity and debt instruments as per the fund manager's view of the market conditions.
Also known as Balanced Advantage Funds, these funds can go up to 0-100% in equities or debt based on predefined asset allocation models they follow.
These funds generate returns by using opportunities of price differences of securities in different markets.
|Top 5 Hybrid Mutual Funds||5Y Returns|
|Quant Multi Asset Fund||20.28% p.a.||#1 in Multi Asset Allocation|
|ICICI Prudential Equity & Debt Fund||14.88% p.a.||#1 in Aggressive Hybrid|
|Edelweiss Balanced Advantage Fund||12.43% p.a.||#1 in Dynamic Asset Allocation|
|Baroda BNP Paribas Balanced Advantage Fund||11.91% p.a.||#1 in Dynamic Asset Allocation|
|Tata Balanced Advantage Fund||10.02% p.a.||#1 in Dynamic Asset Allocation|
ELSS (Tax saving schemes) and Aggressive Hybrid Funds (can invest 65-80% in equities) are good options to start your investments.
The list includes selected funds that have consistently delivered higher SIP returns than their peers.
The investment objective of these funds is to provide dual benefits of wealth generation as well as tax savings. You can save up to ₹46,800 in taxes every year by investing in ELSS.
These funds generate returns by investing in companies whose stock price is trading at a discount compared to the value of their assets.
At ET Money, we follow 3 easy steps to make investments simple, convenient, and quick:
Select your preferred fund
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If you are planning to invest in ELSS funds and avail an additional benefit of tax saving of up to Rs 46,800, this blog will provide you a complete guide to choose the best fund for you.
If you are planning to invest lumpsum, you can read this blog to know which are the best mutual funds to do that.
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ET Money is a user-friendly app that has made buying mutual funds pretty easy. Details of each fund like past returns, expense ratio, etc. have been displayed clearly for investing strategically.
ET Money has made my search for investment products easier than ever. I can get all information related to investment products like mutual funds and NPS in one place.
ET Money is a nice app that provides a good user experience. The funds have also been ranked by their experts which helps while taking investment decisions.
How do mutual funds work?
A mutual fund is a trust that pools investors' money. Investors are allotted units of the funds as per their share of investment in the pool of assets. This money is then invested across various types of mutual funds like equity, debt, and other securities by the fund manager appointed by the asset management company.The objective of the fund manager is to generate good returns. The gains or losses generated by the fund are distributed among the unitholders (investors) in the proportion of the share of investment.
How to choose a good mutual fund for investment?
There is no straight answer to this question. Different funds have different risk-return profiles. You need to choose a fund based on your risk-taking capabilities and the time horizon you have in your mind for the investment. So, you need to find a balance between your risk tolerance and the risk of the fund you are planning to invest in. For example, if you are willing to take high risk but your investment horizon is less than 3 years, you shouldn't invest fully in equity funds.You may consider investing in a mix of equity and debt with more exposure to debt funds. Therefore, you need to choose the best mutual fund based on your risk appetite and time horizon.
How are mutual funds withdrawals taxed?
On withdrawal, if your redemption value is higher than the purchase price of a mutual fund, the same will be classified as capital gains. The gains from both equity (above a threshold limit) and debt funds are taxable. The gains are classified as short-term capital gains (STCG) or long-term capital gains, depending on the holding period.In the case of equity funds, if you sell your investments before one year, gains will be classified as STCG otherwise, LTCG. In the case of debt mutual funds, if you sell your funds after 3 years, the gains will be classified as LTCG. However, gains on holdings sold before 3 years will be classified as STCG. You can read in detail about capital gains tax on mutual fund returns here
How can I invest in mutual funds?
There are multiple ways to invest in mutual funds. You can invest directly from the website of the fund house or through investing apps like ET Money, which offer direct funds and charge no commission.Direct mutual funds offer higher returns than regular plans as they don't charge any distribution commission. If you invest directly through AMC's website, it may get difficult to manage your portfolio as you may have to track your investments on different websites.While if you invest through ET Money, you can see all your holdings and performance of your funds in one place. This makes managing your portfolio much easier.