Frequently Asked Questions About Mutual Funds
Published On Aug 19, 2021 5:00 PM By InsuranceDekho
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Mutual fund investments are a great cooperative means to have your savings professionally managed. Investment patterns are evolving in In India; investors are moving away from traditional avenues and putting their savings into financial assets.
Frequently Asked Questions About Mutual Fund
These are answers to some of the most common questions asked regarding mutual funds:
- How do mutual funds work?
A mutual fund can be referred to as a collective fund generated by pooling money from investors. This fund is then invested in a variety of securities. The income generated in the form of returns is shared by investors in proportion to the number of units possessed by each investor. The management of these funds is done by experts who have relevant market knowledge.
- What is the minimum amount that you need to invest in a mutual fund scheme?
This depends on the type of fund you are investing in. Earlier, the minimum investment ranged from Rs. 500 to Rs. 5000 but now, in order to attract more consumers, mutual fund companies are letting their investors start investing with just Rs. 100.
- Do mutual funds guarantee returns?
Every form of investment comes with a certain amount of risk. While advisors might tell you that the returns will be good if you invest for the long term, but in reality, mutual funds are subject to risks and there is no guarantee for good returns. Thus, depending on the securities the fund is investing in, or the mix of securities chosen for a specific fund, the element of ‘risk’ varies substantially.
- Are mutual funds liquid enough?
An asset that can be converted into cash readily is considered to have high liquidity. Mutual funds as an asset are very liquid. You can exit a scheme and fund monetized within a short period of time; this is irrespective of the fact whether returns are profitable or not.
- Which equity mutual funds generated the highest returns?
If you are planning for a short-term investment, then equity investment might not be the right option for you. You can consider liquid funds or mutual funds which can give you around 7 per cent return before tax.
- Which shared class is right for me?
Essentially, it depends on your goal. Mutual funds have three classes, A shares, B shares, and C shares. The only difference between these is regarding the type of fees and expenses associated with them. Each class will invest in the same securities. Select a class that best aligns with your objective; be clear about your objectives and carry out your research regarding various kinds of fees associated with each class.
- How efficient are the fund managers?
Fund managers are considered to be efficient as they possess the knowledge to ensure that your funds are invested appropriately. But it is highly recommended to carry out a background check and understand how credible and efficient your fund manager is. It is also advisable to understand the rationale behind his strategies and not blindly agree with what he suggests.
- Are there any tax benefits?
If you invest in any tax saving scheme, you can claim tax deductions of up to Rs 1.5 lakh under Section 80C. These schemes are referred to as Equity Linked Saving Schemes (ELSS).
- Are mutual funds replacing bank deposits as a preferred investment option?
Mutual funds are definitely becoming a preferred mode of investment. Over the past, three years investment in mutual funds has almost doubled while bank deposits grew by about 34 per cent and there has been re-allocation to funds in 2018. This is mainly due to the fact that deposit rates have considerably come down.
- What to do if mutual funds are giving negative returns?
This largely depends on the time period. If you are investing for a longer period, then you must keep in mind that when the stock market is down, it will have a negative impact on the equity. Make sure that the scheme that you have invested in is in line with your objectives.
Now that your key questions on mutual funds have been answered, you can consider purchasing mutual funds yourself. Instead of going through a cumbersome offline route that may involve agents and loads of paperwork, consider purchasing mutual funds online. Doing so comes with a host of benefits including zero commission, fast and free accounting opening and detailed portfolio insights.
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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.