Mutual Fund Fundas for the First timers


The continuously evolving mutual fund industry in India is all set to grow. Several fund management companies and MF houses are constantly investing in investor education, yet the market penetration of mutual funds in India is at a dismal low when compared to countries like the US. However, we have figures that indicate that we have a slow yet steady growth. The growth percentage currently stands at a 7.45% (May 2017 as compared to December 2016 Assets under Management) * and the mutual fund industry in India is yet to witness the growth boom.

Just a basic enquiry about Mutual Funds reveal a lot about its capacity to become the investor’s best friend in terms of security, liquidity and wealth creation.  Flexible, hassle-free and 100% comprehensive, they suit the varied needs of an investor. There are various mutual fund investment categories and below is a quick round up on each one of them.

Mutual Funds are divided into three basic categories: 1) Open Ended 2) Close Ended 3) Interval

  • An open ended Mutual fund allows the investor to buy and sell any number of units in the mutual fund at any point of time. It has no ceiling on the number of units nor any fixed maturity date. An open ended Mutual Fund has the following under its wing.
  1. Income/Debt Funds: In this fund, the investment is channelized or invested in debentures of companies, government bonds and securities. Growth or capital appreciation is not as high, when compared to equity and it is ideal for investors who a have low risk tolerance and are looking for a steady income.
  2. Liquid Funds or Money Market Funds : If the investor is seeking to put to good use his surplus funds then this one is the way to go. The schemes under this category provide reasonable returns for the investor and invest in debt –instruments that are shorter in term.
  3. Equity/Growth: These are the fund manager’s favourite and if invested in, offer a brilliant yield for the investor. The investable fund in schemes under this category, goes towards stocks and shares of companies. It’s a high-risk bet in the short term, but has capital appreciation in the long term. Index, Sectoral and Tax saving are the three different schemes under Equity.
  • Index – A popular concept in the west, here the investments replicate the movements of the index like the Nifty or the Sensex.
  • Sectoral – The investment is made in sectors like telecom, infrastructure, IT or pharma and offer a high return opportunity over a period of time with a relatively higher risk as compared to debt.
  • Tax saving – The tax saver’s favourite as the name suggests and invested in equities, these funds are tax saving instruments and come with a 3 year lock-in period.
  1. Balanced – Yes. The investor gets the flexibility of investing in equity as well as debt options while giving the investment security as well as growth opportunity. This is done by pre-determining the proportion, and the investment is allocated accordingly. The portfolio is also tracked in the same manner and the investor can see the yield under the different categories. Mutual funds offer unmatched transparency as far as fund management is concerned.
  • A Close ended Mutual Fund – Time bound, the investor can invest only when the fund is open and it is stipulated to a maturity period. The investment is made during the initial launch period or ‘New Fund Offer’ period.
  1. Capital Protection – Investment options under this scheme offer capital protection by investing in fixed- income securities that are high in quality with minimal or marginal exposure to equity to ensure reasonable returns for the investor.
  2. Fixed Maturity Plan – Suggestive of the name, the funds managed under this scheme are subject to a maturity period. Comprising of debt instruments, the earnings are derived through the interest component of the securities in the portfolio also known as coupons. This is a passively managed fund unlike the equity mutual fund.
  • Interval – This is a combination of open and closed ended schemes which allows the investor to invest at pre-determined intervals.

Mutual Funds have been the most preferred investment vehicle once the investor has seen the bounties it can offer. Your first step into the mutual fund world starts with educating yourself about it. An informed investor is able to secure and grow wealth.

*Source :

Times of India. Business Today.

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