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A mutual fund is an investment vehicle that pools money from multiple investors to create a diversified portfolio of stocks, bonds, or other assets, managed by professional fund managers. This collective approach allows investors to benefit from diversification and expert management without needing to directly manage individual securities. Returns come from dividends, interest, and capital gains from the underlying assets, and the value of the fund’s shares fluctuates based on the performance of these investments.
Types of Mutual Funds
Mutual funds may be broadly classified into the below categories
Equity Fund
Hybrid Fund
ELSS
Index Fund
Debt Fund
Mutual Funds Investment Plans
Direct Vs Regular Plans
If you invest in a mutual fund directly through the fund house’s website or app, without involving a distributor or advisor, it is referred to as a direct plan. On the other hand, if you invest in a mutual fund through a registered distributor, like us, it is known as a regular plan.
DIRECT PLAN
- No intermediary involved.
- Total expense ratio is lower than regular plan; hence Net Asset Value (NAV) & returns are higher in comparison.
- DIY (do-it-yourself) investment.
REGULAR PLAN
- Bought through a mutual fund distributor.
- Total expense ratio is higher due to distribution commission; hence NAV & returns are lower in comparison.
- Your financial advisor may guide with mutual fund plans, assist with transactions, monitor the portfolio, etc.
GROWTH PLAN
- Reinvested profits increase the mutual fund NAV over time.
- Short or long term gains will be applied at redemption.
- Ideal for those focussed on long term wealth creation.
IDWC PLAN
- Dividends are paid out to investors, hence NAV is lower than the growth plan.
- Dividend income will be taxable as per the investor’s tax slab.
- Ideal for those who want periodic payouts.
Growth Vs IDWC Plan
If you choose the growth option when investing in a mutual fund, any profits earned are reinvested back into the scheme, increasing the value of your investment over time. In contrast, if you select the Income Distribution cum Capital Withdrawal (IDCW) plan, your profits (or dividends) are distributed to you at predefined intervals.
Growth Vs IDWC Plan
If you choose the growth option when investing in a mutual fund, any profits earned are reinvested back into the scheme, increasing the value of your investment over time. In contrast, if you select the Income Distribution cum Capital Withdrawal (IDCW) plan, your profits (or dividends) are distributed to you at predefined intervals.
GROWTH PLAN
- Dividends are paid out to investors, hence NAV is lower than the growth plan.
- Dividend income will be taxable as per the investor’s tax slab.
- Ideal for those who want periodic payouts.
IDWC PLAN
- Dividends are paid out to investors, hence NAV is lower than the growth plan.
- Dividend income will be taxable as per the investor’s tax slab.
- Ideal for those who want periodic payouts.
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How Do You Determine Which Mutual Fund is Best?
With different types of mutual funds in India offering various benefits & carrying different investment risks, it may be tough to identify the best mutual fund to invest in. Doing thorough research on the schemes you wish to invest in, checking the 1, 3, 5 year returns, and understanding the scheme objective and underlying securities may help you make an informed decision.
Mutual Fund Companies
We are empanelled with top Asset Management Companies like Nippon India Mutual Fund, HDFC Mutual Fund, Kotak Mutual Fund, ICICI Prudential Mutual Fund and Aditya Birla Mutual Fund.
To find the top performing mutual funds in India, investors need to look at a variety of factors, including:
Historical Returns
Investment Strategy
Fund Manager Profile And Track Record
Comparison With Other Mutual Funds
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FAQs
1. What is a mutual fund?
A mutual fund is an investment vehicle that pools money from multiple investors to create a diversified portfolio of stocks, bonds, or other securities. It is managed by professional fund managers.
2. How do mutual funds work?
When you invest in a mutual fund, your money is combined with that of other investors. The fund manager uses this pool of money to buy a variety of securities that align with the fund’s investment objectives. The returns are distributed among the investors based on the number of units they hold.
3. What are the different types of mutual funds?
Mutual funds can be broadly categorized into equity funds, debt funds, hybrid funds, index funds, and sectoral/thematic funds. Each type has different risk levels, returns, and investment goals.
4. What is an expense ratio?
The expense ratio is the annual fee that mutual funds charge their investors to cover the costs of management, administration, and other operational expenses. It is expressed as a percentage of the fund’s total assets.
5. What are the risks associated with mutual funds?
Mutual funds are subject to market risks, which can vary depending on the type of fund. Equity funds carry higher risk due to market volatility, while debt funds are relatively safer but may still be affected by interest rate changes and credit risk.
6. Can I lose money in mutual funds?
Yes, mutual funds are subject to market risks, and there is no guarantee of returns. The value of your investment can fluctuate based on the performance of the underlying securities in the fund.