What Is a Good Mutual Fund to Buy

Top Performing Mutual Funds of 2021

• Equity
• Tax Saving
• Hybrid
• Debt

Investment Ideas for You

All Mutual Fund Houses

Types of Mutual Funds

Based on Asset classes

• Equity Funds: These funds primarily invest in stocks and can be actively or passively managed. The highs and lows are determined by the performance of the market. While they offer potentially high returns, they also come with relatively higher risks.
• Debt Funds: These funds invest in fixed-income securities, including bonds, securities, and treasury bills, among others - these have a fixed interest rate and maturity period. These offer regular income and growth. The growth might not be at par with equity funds, but there's a steady income flow.
• Hybrid Funds: These invest in a mix of bonds and stocks and offer the best of both worlds - equity and debt. The ratio can differ; it can be variable or fixed. This works well for investors who want to earn good returns but also want a safety net (that the debt component provides).

Based on structure

Here's a look at the mutual funds:

• Open-Ended Funds: These funds can issue an unlimited number of units to the investor. Also, there's no restriction on the time period - an investor can thus invest based on their convenience and exit when they like the current NAV.
• Closed-Ended Funds: The unit capital of closed-ended funds is fixed, and they sell a specific number of units. Unlike in open-ended funds, investors cannot buy the units of a closed-ended fund after its NFO period is over. These funds have a certain maturity tenure. Like any other mutual fund, a closed-ended fund has a professional manager overseeing the portfolio and actively buying and selling holding assets.
• Interval Funds: These funds take in traits of both open-ended and closed-ended funds. They can only be exited at certain intervals decided by the fund house; they remain closed for the remaining period. No transactions are allowed for a fixed period of time - your money is not locked-in for longer periods unlike in the case of closed-ended funds.

Specialised Mutual Funds

• Sector Funds: These invest in one particular sector. The risk is highest since these funds invest only in specific sectors, but they also potentially deliver great returns. In this case, it is important to stay aware of sector-related trends.
• Funds of Funds: A Fund of funds is a type of mutual fund which invests in other mutual funds or investment avenues. It is basically an investment strategy that pools in money and invests in other investment funds instead of investing directly in stocks or bonds or other assets.

How Portfolio is managed

• Actively managed funds: An actively managed fund is a fund in which a fund manager takes decisions on which stock to buy, when to buy it and when to sell it. The aim here is to deliver market-beating returns.
• Passively managed funds: A passively managed fund, by contrast, simply follows a market index to decide which stocks and their corresponding ratio it should have in its portfolio. There is no regular buying and selling happens and changes in the portfolio are done only when there are changes in the index.

Advantage of Mutual Funds

Here's why investing in mutual funds is a good idea:

• 

  Liquidity

  Except for the case when you decide to go for close-ended mutual funds, it is easy and hassle-free to buy and exit a mutual fund scheme. Close-ended funds issue a fixed number of units - this means that new investors cannot enter, nor can the existing investors exit until the term of the scheme ends.

  In the case of ELSS Mutual Funds, although they are open-ended funds, they have a lock-in period of three years.

• 

  Diversification

  Mutual funds do come with their set of risks since they are impacted by the performance of the market. Funds invest in asset classes - be it equity, debt, and others and, within asset classes in different sectors and company sizes.

  For instance, equities will buy stocks from different sectors. If one asset class does not perform well, the other can help with better returns, so that the investor faces minimum loss.

• 

  Expert management

  This is another reason why mutual funds are preferred - it does not require investors to do any research - it is the fund manager who takes care of it and makes decisions on what needs to be done with your investment. He also decides on whether you should hold certain stocks or not, and for how long.

  This makes it critical to have an experienced fund manager, and one of the biggest prerequisites before you zero in a mutual fund house.

• 

  Fits all financial goals

  There are multiple mutual fund schemes available today that cater to specific life goals, such as children's education or marriage, retirement, or buying a house. To begin with, you must identify the time frame of your goals.

  For instance, you want to save up for a vacation in the next year or buy a gadget, these are considered short-term goals. To achieve these goals, you can invest in Liquid Funds or Ultra Short Term Funds.... read more

  Mid-term goals are those that you plan to achieve in the next three-four years. This could be a down payment to buy a house or a car, planning a business, or similar reasons. For these goals, a Balanced Fund is highly preferred. One can also come for a Monthly Income Plan in this case.

  Coming to long-term goals, these are ones that you think will take longer to achieve, say over 5 years. Whether it's saving for your children's future or your retirement, the planning must be systematic and organized. For these goals, Equity Mutual Funds are good, since they offer higher returns but also come with high risk. You could choose from Large-cap/Mid-cap/Small-Cap Funds, ELSS, or Multi-Cap Funds. Read less

• 

  Cost efficiency

  An investor also has the option to go for mutual funds that have low expense ratios. You can check the expense ratios of a range of mutual funds and then decide on the one that fulfills your financial goals.

  The expense ratio is the fee that is charged by the mutual fund house to manage your funds.

• 

  Tax-efficient returns

  Mutual Fund returns are more tax-efficient compared to traditional investment avenues like FDs. In Equity Mutual Funds, you pay 15% tax on returns if you invest for less than a year.

  For a holding period of more than 1 year, you pay tax only if your returns exceed ₹1 lakh in a financial year. Even then the tax rate is 10% and you pay it on the amount in excess of ₹1 lakh.

How to Invest in a Mutual Fund?

Investing in a Mutual Fund is extremely easy with ETMONEY.

• 

  For first-time investors

  For first-time investors, KYC is a prerequisite for investing in Mutual Funds. On ETMONEY, the entire KYC process is completely paperless and takes only a few minutes

• 

  For existing Mutual Fund investors

  For existing Mutual Fund investors, it is equally easy to begin investing. They just need to enter a few details and they can start investing

• 

  Direct Mutual Funds

  On ETMONEY, you invest in commission-free Direct Mutual Funds, which help you earn extra returns by saving on commissions.

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What Is a Good Mutual Fund to Buy

Source: https://www.etmoney.com/mutual-funds

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