Investing in Mutual Funds through Deepak Wealth Framework
Understanding Mutual Funds
Mutual funds are an investment avenue formed by asset management companies (AMCs). An AMC appoints a fund manager, and obtains money from multiple investors and systematically allocates these funds across multiple asset types such as equity stocks, debt securities, gold, and other securities in order to achieve the best possible returns with an acceptable level of risk.
Ways to Invest in Mutual Funds
Types of Mutual Funds
Equity Funds:
Funds that invest 60% or more of the total corpus into any equity market for the purpose of providing growth over the longer term.
Large Cap Funds: At least 80% invests in the largest 100 companies.
Mid Cap Funds: Up to 65% on medium sized companies.
Small Cap Funds: 65% in companies 251st and lower.
Multi Cap Funds: 25% of funding across, large, medium and small caps equally.
Debt Funds:
Funds that invest in shorter-term, fixed income type securities to provide a steady, direct income such as corporate bonds and governmental securities.
Liquid Funds: 100% in money market type instruments with maturities of up to 91 days.
Short-term Funds: At least 80% in short-term debt instruments with maturities of 1-3 years.
Corporate Bond funds: Up to 80% in high rated corporate debt type securities.
Government Bonds: 100% invested in government bonds, such as treasury bonds.
Hybrid Funds:
This category of funds invests in multiple asset classes like equity, debt, and gold, thereby introducing a multi-cap strategy in just one fund.
Aggressive Hybrid Funds: 60-80% allocated to equities and 20-35% in debt securities.
Conservative Hybrid Funds: 65% allocated to equity derivatives; the balance in stock and bonds.
Multi Asset Funds: 10% in equity, debt, or gold.
Dynamic Funds: adjusts the investment allocation to equities and debt based on changing market conditions.
Other Funds:
This whole new category of funds creates investment opportunities outside traditional equity and debt categories, allowing for further unique diversification.
Gold Funds: invest in both gold securities and mining stocks to grow with appreciation in the price of gold.
International Funds: invest in stocks and/or bonds from around the world to diversify globally.
Index Funds: provide investment in indices like Nifty 50 and S&P 500 to provide broad based, low cost, exposure to the market.
Silver Funds: invest in Silver ETFs and/or Silver mining companies to grow with appreciation in the price of silver.
Benefits of Investing in Mutual Funds
ssic Diversification: Reduce the total risk of investing by investing in numerous different stocks and bonds.
Flexibility: Choose among different types of assets and also choose an amount to invest that fits your needs.
Professional Management: Professional asset managers utilize years of history to maximize your investments.
Transparency: Detailed reports of the actual investments in the fund can direct appropriate changes in your portfolio. Systematic Investing: The best way to build wealth is through smaller consistent amounts via systematic investment plans (SIPs) for the long term.
Liquidity: Buy and sell funds easily without affecting the funds price levels.
Frequently Asked Questions (FAQ’s)
A mutual fund pools money from multiple investors to invest in a diversified portfolio of securities. Professional fund managers manage the fund, making investment decisions to achieve the fund’s objectives. Investors earn returns based on the performance of the underlying assets.
Mutual funds can be categorized into equity funds, debt funds, hybrid funds, money market funds, and sector-specific funds. Each type has different risk and return characteristics, catering to various investment goals.
You can invest in mutual funds through financial advisors, online platforms, or directly with the fund house. Choose a fund that aligns with your investment goals, complete the application process, and make the payment.
Benefits include diversification, professional management, liquidity, and the potential for higher returns compared to traditional savings accounts. Mutual funds also offer flexibility with various investment options.
Risks include market risk, interest rate risk, credit risk, and liquidity risk. The level of risk varies depending on the type of mutual fund. It’s important to understand these risks before investing.
Returns are calculated based on the change in the fund’s Net Asset Value (NAV) over a period. NAV represents the per-share value of the fund’s assets minus liabilities. Returns can be expressed as absolute returns or annualized returns.
The minimum investment amount varies by fund. Some funds have no minimum requirement, while others may require an initial investment ranging from 500 to 5,000.
Yes, you can invest in multiple mutual funds using a single bank account. You do not need separate accounts for different funds.
Missing a Systematic Investment Plan (SIP) payment may result in a penalty from your bank for dishonoring the e-mandate. If you miss three consecutive SIP payments, your SIP may be canceled automatically.
Growth funds reinvest your investment gains, allowing your investments to grow over time. Dividend funds distribute a portion of the gains to investors at regular intervals. Growth funds are generally preferred for long-term wealth accumulation.
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