Money Talks- Part 7- Mutual Funds

In this post I will cover the Mutual funds (MF) :

–          What they are?

–          Broad Types.

–          How we can do it ?

Mutual Fund combines the features of shares ( stock/ equity instruments) and debt instruments (debentures/Bonds/Any other fixed income investments).  So it gives the option to us to invest in a combination of equity and debt instruments with proportion of each varying under different funds.

You would come across multiple funds. Below would help understand broad differences-

–          Equity Funds where majority of funds say more than 60% would be invested in shares and balance in debt instruments. Equity fund can further be divided into Large Cap, Mid Cap, Small Cap and Multi cap funds. Market capitalization (Cap) is value of shares of the company listed on stock exchange.

–          Debt Funds where almost entire funds would be invested in debt instruments & balance in cash/ liquid instruments.

–          Balanced Funds which invest in almost equal proportion in debt and equity.

–          Liquid Funds which invest in short term instruments like commercial paper etc.

You further get the below options while choosing the first three categories:

–          Dividend Option

–          Growth Option

The first one pays dividend when declared , while the second one reinvests that. Considering there is no payout of dividend in second one, the overall returns would be higher than the fund with dividend option.

The other common term you come across is SIP ( Systematic Investment Plan). So you can either make a lumpsum payment to invest in a MF or save yourself of the hassle of investing every month and register SIP which will help you put the amount every month on specified date and fund. Minimum period is 6 months for which you need to continue  SIP.

Now how to do it?

You can go directly to any mutual fund website and register there where you will need provide your basic KYC details.

Your KYC should have been verified which you can do directly from either MF website or from one of the CRA agencies – NSDL/CDSL. CAMs also provide CRA services.

Once your KYC details are verified, some MF’s ask to upload a scanned copy of cheque. After having registered you are ready to invest in the funds offered by that fund house.

Some banks also provide the facility to invest in MF account from your net banking portal itself like HDFC bank. It enables ease to invest in any MF of any MF house from a single place. There is however a variation in the returns ( which may or may not be significant of around 0.5%) when you invest directly or through an intermediary like a bank.

So get started with your SIP in case you haven’t.