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Mutual Funds are financial instruments. These funds are collective investments which gather money from different investors to invest in stocks, short-term money market financial instruments, bonds and other securities and distribute the proceeds as dividends. The Mutual Funds in India are handled by Fund Managers, also referred as the portfolio managers. The Securities Exchange Board of India regulates the Mutual Funds in India. The unit value of the Mutual Funds in India is known as net asset value per share (NAV). The NAV is calculated on the total amount of the Mutual Funds in India, by dividing it with the number of units issued and outstanding units on daily basis.

Benefits of Investing in Mutual Funds

Any one who is aware of stock market is not new to mutual funds. Mutual funds have gained in popularity with the investing public especially in the last two decades following are some of the primary benefits.

Professional Financial Experts

Every Mutual Fund scheme has a well-defined objective and behind every scheme, there is a dedicated team of financial experts working in tandem with specialized investment research team. These experts diligently and judiciously study companies, their products and performance, and after thorough analysis, they decide on the best investment option most aptly suited to achieve the scheme’s objective as well as investor’s financial goals.

Diversifying Risk

It plays a very big part in the success of any portfolio. Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund unit-holders can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities.

Low Cost

Mutual Funds generally provide an opportunity to invest with fewer funds as compared to other avenues in the capital market. You can invest in a mutual fund with as little as Rs. 5,000 and also have the option of investing a little of Rs. 500 every month in a SIP or Systematic Investment Plan.

Liquidity

You can encash your money from a mutual fund on immediate basis when compared with other forms of savings like the public provident fund or National Savings Scheme. You can withdraw or redeem money at the Net Asset Value related prices in the open-end schemes. In closed-end schemes, lock in period is mentioned, investor cannot redeem his investment until that period.
Variety of Investment

Variety of Investment

There is no shortage of variety when investing in mutual funds. There are funds that focus on blue-chip stocks, technology stocks, bonds or a mix of stocks and bonds and with due assistance from a financial expert, the investor can choose a scheme that aptly fits his requirements, and helps him achieve maximum profitability.

Types of Mutual Funds

Equity Funds

Equity Funds aim to provide capital growth by investing in the shares of individual companies. Any dividends received by the fund can be reinvested by the fund manager to provide further growth or paid to investors. Both risk and returns are high but equity funds could be a good investment if you have a long-term perspective and can stay invested for at least five years.

Hybrid Funds

The aim of debt or income funds is to provide you with a steady income. These funds generally invest in securities such as bonds, corporate debentures, government securities (gilts) and money market instruments. Opportunities for capital appreciation are limited.

Money Market Funds

These funds are a safe place to park your money; it is an appealing alternative to bank deposits because they aim to provide liquidity, capital preservation and slightly higher interest rates than bank accounts. Returns on these funds fluctuate much less compared to other funds as the fund manager invests in ‘cash’ assets such as treasury bills, certificates of deposit and commercial paper

Debt or Income Funds

About SIP

Systematic Investment Plan (SIP) is a disciplined way of investing, where you invest fixed amounts at a regular frequency (say, every month or quarter). It is bit by bit systematic investment. For example, you commit to invest a pre-specified amount (Rs 500 onwards) every month in a mutual fund. You fix a date on which every month the amount gets invested. The first investment has to be by a cheque and then you can opt for electronic clearing system (ECS).

ADVANTAGES OF SIP
The advantages that MFs offer include professional management, affordability, liquidity and convenience. Besides, they are well regulated, transparent and tax efficient. Having invested in a MF scheme, the investor need not track the Net Asset Value (NAV) or performance on a daily basis.
Power of Compounding
SIP helps you to start investing at an early age to meet the greater expenses of your life. Saving a small sum of money regularly makes money work with greater power of compounding with significant impact on wealth accumulation.
Rupee Cost Averaging
SIP minimizes the effects of investing in volatile markets. It helps you average out your cost by generating superior returns in the long run. It reduces the risk associated with lump sum investments. Since you get more units when the NAV drops and fewer when it rises, the cost averages out over time Thus the average cost of your investment is often reduced.
Convenience and Regularity
SIP gives you the convenience to pay through Axis Bank Electronic clearance service (ECS) or Auto Debit. You can decide the amount and the mutual fund scheme. A fixed amount will automatically get debited from your account on a date specified by you.
Disciplined approach towards investment
Since you invest regularly, it makes you disciplined in your savings, which leads to wealth accumulation. Disciplined investing is vital to earning good returns over a longer time frame