16 December 2022
Investments ensure the long-term financial security, which is why investing a portion of your earnings is one of the most important things you can do. Aspiring Indian professionals of today recognize that along with contributing to a financially secure future, investments can also be a steady source of income. Their returns can be channeled into several financial goals. And when investments fall short, there are always comprehensive solutions like the Fibe Credit Suite ready to serve them.
Mutual funds are a diversified way of growing your savings while also minimizing tax liability. In the past decade, they’ve become a mainstream investment option, with people from a wide range of financial backgrounds putting their faith in them.
However, there are still people who are willing to invest in mutual funds but are hesitant on how to proceed. Worry not, though. In this post, we’ve compiled all the information you need to know before making your first mutual fund investment.
First things first: a mutual fund, in case you’re unaware, is an investment instrument where you put in your money for increased profits. Your investment is pooled with those from other investors and managed by a group of skilled financial experts.
Mutual funds are overseen by an asset management company – or an AMC. The AMC takes funds from the investors and channels them into a varied assortment of assets (stocks, bonds, commodities, etc.). The returns are distributed in proportion to the investor’s contributions.
There’s a broad selection of mutual funds available for investors to choose from as per their goals and risk appetite. Now, we’ll be taking a look at some of the conventional types of mutual funds.
Mutual funds are sorted into different categories based on quite a few factors, including but not limited to the asset class, their maturity periods, and fund structures.
By far the most popular mutual fund type among investors, equity funds invest in the stocks of different companies. Equity funds themselves can be divided into several categories based on the sort of equities they invest in. For instance, based on the size of companies being backed up, equity funds can be large-cap, mid-cap, and small-cap.
The SEBI (Securities and Exchange Board of India) has sanctioned 11 categories of equity mutual funds, such as Multi-Cap funds, ELSS (Equity Linked Saving Schemes) for tax benefits, and more.
A debt mutual fund generates interest income by investing in instruments such as government bonds, corporate bonds, etc. SEBI has listed 16 types of debt funds in total. For example, short-duration funds, liquid funds, Banking & PSU Fund, etc.
These invest in both debt and equity MFs, as well as other related instruments. Hybrid funds aim to strike a balance between risk and good returns.
The SEBI categorizes hybrid mutual funds into 7 kinds, such as the Conservative Hybrid Fund (investing in debt), the Aggressive Hybrid Fund (investing in equity), Balanced Hybrid Fund, and more.
There are several methods to invest in a mutual fund scheme, although the most popular are:
Before you select a mutual fund for yourself, consider the following factors:
Your earnings out of a mutual fund investment count as a form of income (capital gains) and therefore are taxable. Depending on your MF scheme and the duration of your investment, your payable tax would vary.
The tax rates for equity and debt funds – two of the most sought-after MF schemes – are listed below:
|Short-Term Capital |
|Long-Term Capital |
|According to |
your income tax slab
There are quite a few ways you can invest in a mutual fund. Here are the most common ones:
And there you have it, a guide to mutual fund investments that will hopefully be of help! While this was by no means comprehensive, we do hope it’s given you the knowledge you need to start out as a mutual fund investor and plan your investments better. For all other needs, there’s the Fibe Credit Suite!