WHAT
Mutual funds are financial instruments investing in a portfolio of securities which may include stocks, bonds, money market instruments, gold, silver and real estate investment trusts (REITs) etc. These funds are managed by professional fund managers as per the objectives of the scheme
HOW
Mutual fund units can be bought directly from the market as per the Net Asset Value (NAV/price) of that day or during NFO period.
Net Asset Value (NAV)
NAV is the market value or price of one unit of a mutual fund scheme. It is the per unit price you pay or get when you are buying or selling (redeeming) mutual funds. It is calculated by subtracting the expenses/liabilities from the assets of the scheme and are disclosed by the AMC on each business day.
SIP (Systematic Investment Plan)/Lumpsum
One can invest in Mutual funds via SIP wherein you invest a fixed amount on a weekly/monthly/quarterly basis in a mutual fund scheme which gets automatically debited from your account. This type of investment helps you save diligently and in a disciplined manner and helps in compounding.Lumpsum investment is when you invest an amount one time in a particular scheme.
SWP(Systematic Withdrawal Plan)
SWP helps you withdraw a fixed sum of money at specified intervals like monthly/quarterly. On a prespecified day depending on that days NAV, mutual fund units will be redeemed and the amount credited into your bank account. This can be used as an alternative to pension and will be taxed as per your tax bracket.
TYPES
There are three broad categories of mutual funds:-
- Equity funds: These mutual fund schemes invest in equity and equity related securities and primarily invest in large and midcap, midcap, small cap, multicap, flexicap fund schemes. The primary investment objective of equity funds is capital appreciation.
- Debt funds: These mutual funds schemes invest in debt and money market instruments depending on the maturity profiles of the underlying debt or money market instruments like overnight, liquid, ultra-short duration, low duration, short duration, medium duration, long duration etc. The primary investment objective of debt funds is principal protection.
- Hybrid funds: These funds invest in equity and debt securities besides gold, silver, REITs, InvITs etc. The primary investment objective of hybrid funds is asset allocation. Different types of hybrid funds include aggressive hybrid funds, conservative hybrid funds, balanced advantage funds, equity savings etc.
RISK
Mutual fund invest in stocks for equity funds and money market instruments for debt funds. The price of the underlying securities can go up or down depending on market movement; hence the NAV of your mutual fund scheme can also up or down. Different mutual fund schemes have different risk profiles and we will suggest schemes based on your risk profile/appetite.
TAXATION
Mutual funds, whose average equity allocation (i.e. where underlying assets are equity and equity related securities) is 65% or more, are treated as equity funds from tax perspective. Any mutual fund scheme with less than 65% allocation in equity is a debt fund. Investments in mutual fund Equity Linked Savings Schemes (ELSS) qualify for deductions under Section 80C.
| Fund Type | STCG(Short term Capital Gains) | LTCG(Long Term Capital Gains) |
|---|---|---|
| Equity + Hybrid | 15% +cess+surcharge | Any amount more than Rs1 lakh Is taxed @ 10%+cess+surcharge |
| Debt | Your tax slab rate | Your tax slab rate |
