What is a Mutual Fund?
A Mutual Fund is a trust that pools together the savings of a number of investors who share a common financial goal. The money collected is then invested in Capital Market Instruments such as Shares, Debentures and other securities based on their objective. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by the Investors. Mutual Funds in India are regulated by the Securities and Exchange Board of India (SEBI), and Association of Mutual Funds in India (AMFI).Investing in Mutual Funds is considered to be the easiest way through which you can increase your wealth.
* Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Types of Mutual funds
These are type of funds that primarily invest in stocks and main the investment objective of this class of funds is Long Term Capital Growth. Further, there are many types of equity funds which are categorized based on the size of the companies like Large, Multi/Flexi, Mid, Balance/Asset Allocator.
These funds are known as safe investments and provide secured returns. In these, funds are invested in debt instruments like Company Bonds, Government Bonds, Fixed Income Assets, etc.
The strategy used by these funds are to maintain a certain percentage of mix of both debt and equities. Normally, a typical Balanced Fund will maintain a distribution of 60% equity and 40% debt.
Asset Allocation Fund
It follows on similar objectives that of Balanced Funds but then these kinds of funds do not hold any specified percentage of any asset class.
This type of mutual funds invests in stock of companies that pay dividends, which are profits that a company shares with its stakeholders. These are income generating funds and tend to be less risky than other types of funds. It is a good choice of investment for those who seek regular payments over appreciation.
We do not recommend dividend mutual funds as they attract Tax Liability
What Is SIP ?
Systematic Investment Plan (SIP) is a very easy and convenient mode of making investments in mutual funds on a regular basis. SIP allows one to cultivate a habit of savings and creating wealth for the future by starting early. Offering ease and flexibility, through SIP one can create a planned approach towards investing right. SIP gets auto-debited from the investors account and the amount is invested into a mutual fund scheme that has been specified. The investor then gets a certain number of units which is based on the current ongoing NAV (Net Asset Value). Every-time a SIP is made, additional units keep getting added to the investor’s account. SIP has proved to be an ideal choice of investments for retail investors who lack resources to pursue active investments.
Benefits Of Sip
Offering a hassle-free mode for investing, one can directly get the SIP amount deducted from one’s bank account via a standing instruction to facilitate Auto-debit function.
By investing through SIP, you commit to saving regularly. So, with SIP, one gets into a mode of disciplined savings along with creating a path of attaining one’s financial objectives and goals.
With SIP, one can decide and increase/decrease the amount as they wish, although it is always recommended to continue SIP with a long-term Perspective.
LONG TERM GAINS:
Investing with SIPs leads to long term gains because of the power of compounding and rupee cost averaging. Rupee cost averaging is an automated market timing technique that eliminates one’s need to time the market.