Mutual funds have become a popular investment option in
India, offering investors the benefits of diversification and professional fund
management. These funds are regulated by the Securities and Exchange Board of
India (SEBI), ensuring investor protection. Mutual funds are ideal for
individuals who want to earn returns from the market without getting involved
in its complexities.
SEBI introduced guidelines for mutual funds in 1993,
allowing private sector participation and ensuring transparency in the system.
A mutual fund functions as a trust that includes a sponsor (who initiates the
fund), a trustee (who safeguards investors' interests), an Asset Management
Company (AMC), and a custodian (who secures the fund’s assets).
The price of a mutual fund unit is called the Net Asset
Value (NAV). It is calculated using the formula:
NAV = (Total Assets – Liabilities) ÷ Total Units Outstanding
For open-ended funds, the NAV is determined daily, giving
investors a clear idea of their unit's current value.
Mutual funds are categorized into various types. Based on
structure, there are open-ended funds (can be bought or sold anytime) and
closed-ended funds (with a fixed maturity period). Based on investment
objectives, there are:
Equity Funds (invest in stocks, high risk and high returns),
Debt Funds (invest in bonds, offer stable returns),
Balanced or Hybrid Funds (a mix of equity and debt),
Liquid Funds (low risk, high liquidity),
Index Funds (track a specific index), and
ELSS (Equity-Linked Savings Schemes), which also offer tax
benefits.
Investors can earn from mutual funds in three ways—regular
income through dividends, capital gains from an increase in unit price, and
appreciation in NAV. Investments can be made via online portals, banks, agents,
or directly through the AMC. NRIs can also invest by following specific rules.
There are some charges associated with mutual funds, such as
the expense ratio (management fees), and entry/exit loads (fees on
buying/selling), though SEBI has abolished most loads. For taxation, equity
funds are subject to Long-Term Capital Gains (LTCG) and Short-Term Capital
Gains (STCG) rules. ELSS funds offer up to ₹1.5 lakh tax exemption under
Section 80C.
Before investing, it’s essential to assess your financial
goals, risk tolerance, and investment horizon. Always rely on trusted sources
like AMFI or SEBI for information, and consult a certified financial advisor if
needed.
If a fund is shut down for any reason, investors receive
their due amount after adjusting for liabilities. In case of complaints,
investors can approach the AMC, the trustees or file a grievance via SEBI’s
SCORES platform.
Mutual funds are an excellent investment tool—if chosen wisely and reviewed regularly as per your goals and market
conditions
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