Mutual Funds

Traditional Instruments of Investment

• Savings Bank Account
• Fixed Deposits
• Public Provident Fund
• National Savings Certificate
  

But are these sufficient???

Normal major expenditures (after one is married) 

• Raising a single child: 50 lakhs – 1.5 crores
• Retirement: 2 - 4 crores. (For a young person when he/she retires.)
• Loans (If Any)

And this story has two main villains

• Inflation
• Tax

Real returns (approx.) = Expected Returns – Tax – Inflations 

Make investments such that the real returns are SIGNIFICANTLY POSITIVE. 

Stock Market Investment???

But it is not easy for Most of us to invest in stock Market and make good money.

Mutual funds Basics

Our money is given to experts, professionals who will then invest it in stocks, bonds, etc. to make us more money.

And they get some (less actually) commission for it.

Average annual returns around 11% - 13%
For a good mutual fund it could go around 15% or plus

This will lead to significantly positive REAL returns.

Mutual funds Scheme Types

Equity

• Mostly invest in volatile instruments like stocks; more risky but with higher returns
• Preferred for young people

Debt

• Mostly invest in stable instruments like bonds; less risky with lesser returns
• Preferred for people in their sixties and above

Hybrid

• Mixed of equity and debt in varying percentages
• For people in the range of 45-60 years

Solution Oriented

• Retirement funds
• Children funds
• Insurance Plus funds

Others

• Index Funds: Invest against stock market defined lists
• Fund of Funds: Gold Fund, International Fund, etc.

Mutual funds Scheme Types (Some) 

• Lump sum Investment: One time investment
• Redeem: Withdraw of money from fund
• Switch: Transfer of money from one fund to another
• Systematic Investment Plan (SIP): Periodic investments
• Stopping an SIP is not equal to redeeming your investment
• Systematic Transfer Plan (STP): Periodic switch
• Systematic Withdrawal Plan (SWP): Periodic withdrawal
• Regular: Invest via Broker; additional commission charged
• Direct: Invest without Broker; no additional commission charged.
• Investment Advisor: ONLY advises on investments, does not sells you any fund.
• Dividend: Profit earned is transferred to your bank account and only principal is reinvested
• Growth: Profit is added to the principal and reinvested as totally
• Largecap: Includes top 100 companies by full market capitalization.
• Midcap: Includes companies ranked 101 to 250 by full market capitalization.
• Smallcap: Includes companies ranked 251 onwards by full market capitalization.