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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
Mutual funds pool investor money to buy a mix of assets managed by professionals, offering diversification and potentially strong returns.
Imagine being able to invest in a variety of stocks, bonds, and other securities without needing to spend countless hours researching each one. Mutual funds make this possible, offering a streamlined, accessible way to diversify your investments and grow your wealth.
Mutual funds help you invest in different classes, such as equity, debt, and other assets. The scheme provides liquidity, accessibility, flexibility, and expert management benefits. Moreover, it is the best tax-saving option, as it is safe and transparent.
Whether you are a novice investor or an experienced financial guru, mutual funds can be a powerful tool in your investment strategy. This blog will discuss what are mutual funds, how they work, and why they might be the perfect addition to your portfolio.
A mutual funds scheme is a financial tool in which money is invested in various assets such as equity, debt, and/or other money-market instruments. Investors can choose a short-term, mid-term, or long-term investment plan according to their preferences. Since returns and capital gains directly depend upon market volatility, a solid allocation strategy is required to minimize risk. The funds are allocated in different securities according to the investor’s risk-taking appetite. The funds are managed by the fund manager (investment advisor).
In India, mutual funds come in various types, each categorized by the asset class they invest in, their structure, risks, and benefits. Investors can invest in mutual funds through a Systematic Investment Plan (SIP) or by making a lump sum investment.
Professional fund managers, supported by a team of skilled researchers, oversee the pooled money from investors. They allocate investments across different asset classes based on their expertise to achieve the fund’s objectives. Investors receive their share of the mutual fund in the form of units, and any returns generated by the fund are distributed among investors according to their investments.
Mutual funds fall into two categories: actively managed funds and passively managed funds. In actively managed funds, the fund manager conducts market research and adjusts the fund’s portfolio based on their analysis. Conversely, passively managed funds seek to replicate the performance of a stock market index or benchmark.
Let us delve into the process of mutual fund operation, starting from the launch of a mutual fund scheme to investing in and redeeming mutual funds.
An asset management company (AMC) initiates a first-time subscription offer for a new mutual fund scheme, a new fund offer (NFO). Through the NFO, the fund house raises capital from the public and then invests in securities such as shares, bonds, etc., using the fund’s strategy. NFOs have a limited subscription period, after which investors can only purchase units of the fund.
Mutual funds gather money from many investors, each contributing small amounts. This pooled investment allows investors to access diversified portfolios of securities.
The performance of a mutual fund scheme is evaluated based on its Net Asset Value (NAV), which represents the market value of all securities held by the scheme. NAV fluctuates daily in line with changes in the market value of securities. Returns generated by mutual fund schemes are distributed among investors or reinvested into the fund. In dividend-paying mutual fund schemes, returns are distributed to investors as dividends.
Investors have the option to sell or redeem their mutual fund investments. To facilitate this, the fund manager utilizes the portfolio’s cash balance to fulfill redemption requests from investors.
When it comes to investing in mutual funds, there are two popular modes you can invest through:
Investing a lump sum in a mutual fund involves putting in a significant amount of money all at once. This approach can be ideal if you have a substantial amount of cash on hand, such as from a bonus, inheritance, or savings. It allows you to potentially benefit from market gains immediately but also exposes you to the risk of market volatility.
A Systematic Investment Plan (SIP) allows you to invest a fixed amount of money at regular intervals, such as monthly or quarterly. SIPs are popular because they promote disciplined saving and investing, and they help mitigate market timing risks by spreading your investments over time. This mode especially benefits those who prefer to start with smaller amounts and gradually build their investment portfolio.
Mutual funds are categorized based on various factors, including the asset class they invest in and the investment objectives they aim to achieve. Understanding the different types of mutual funds can help investors make informed decisions about their investment portfolios.
An asset class refers to a category of financial assets with similar characteristics and behaviors, such as stocks, bonds, real estate or cash equivalents. Discover diverse Mutual Funds categorized by an asset class.
Equity Funds invest in shares of companies. For example, large-cap Equity Funds target well-established, large companies, while small-cap funds focus on smaller, high-growth businesses.
Debt Funds invest in bonds, providing a steady income. They include categories like Government Bond Funds and Corporate Bond Funds.
Money Market Funds invest in low-risk, short-term securities, such as Treasury bills and commercial paper.
Hybrid Funds blend stocks and bonds, like balanced funds, which aim for growth and stability in a single package.
These funds cater to specific financial objectives, offering diverse options to match the investors’ unique goals.
Growth Funds focus on capital appreciation by primarily investing in stocks of companies with high growth potential. They are suited for long-term investors seeking substantial returns.
They emphasize regular income generation by investing in bonds, fixed-income securities, or dividend-yielding stocks. They suit investors looking for a steady income stream.
Liquid Funds prioritize liquidity and safety by investing in short-term debt instruments. They are ideal for investors seeking quick access to funds with minimal risk.
Tax-saving funds, or ELSS, offer tax benefits under Section 80C. They invest primarily in equities and serve as a tax-efficient investment option.
Aggressive Growth Funds target substantial capital appreciation and are willing to accept higher market risks. They suit investors with a long-term horizon and a risk-taking approach.
Capital Protection Funds focus on safeguarding the principal amount while generating modest returns. They are ideal for risk-averse investors looking to protect their investments.
Maturity Funds have a predetermined maturity date, providing investors with a clear investment horizon. They are suited for those looking for fixed returns and minimal interest rate risk.
Pension Funds aim to create a corpus for retirement by investing in various assets. They cater to individuals planning for a secure financial future after retirement.
Investing in mutual funds can be an excellent decision for long-term wealth generation. If you want to invest in mutual funds, follow these steps:
Earnings from mutual funds are calculated based on the Net Asset Value (NAV) of the fund. Let us see how it works:
The NAV represents the per-share value of the mutual fund and is calculated by dividing the total value of the fund’s assets minus liabilities by the total number of outstanding shares.
If the NAV of the mutual fund increases, your investment grows. For example, if you bought shares at an NAV of ₹100 and the NAV rises to ₹120, you’ve gained ₹20 per share.
Mutual funds may distribute earnings in the form of dividends (from interest or dividends earned by the fund’s assets) or capital gains (from the sale of securities). These distributions can be received as cash or reinvested in additional fund shares.
The total returns of a mutual fund include capital appreciation (increase in NAV) plus any dividends or capital gains distributions received.
The tax implications of mutual funds refer to how the Indian government taxes the earnings you generate from mutual funds. Let us take a look at the tax implications of mutual funds:
Mutual funds have become a cornerstone of modern investment portfolios, benefiting investors of all backgrounds and experience levels. These investment vehicles take funds from various investors to invest in a diversified portfolio of stocks, bonds, or other securities. Let us take a look at the benefits of mutual fund investments:
Unlike conventional investment options like fixed deposits, mutual fund schemes provide liquidity. As a result, one can redeem their units quickly at any point in time. However, an appropriate penalty or exit load is applicable on the withdrawal.
Most people hesitate to invest due to the instability created by market fluctuations and volatility. However, putting all your eggs in one basket is never wise. Mutual funds are generally diversified in various securities depending on your plans and terms to minimize the risks of losses.
Experts manage mutual funds with a deep understanding and thorough market knowledge. They know where to put your money for the safest and maximum outcomes. In addition, fund managers take care of timely exits and new investments.
Investors have enormous flexibility regarding their investments, even when investing a comparatively low amount. One can invest monthly or quarterly using the Systematic Investment Plan (SIP) at convenience. Mutual funds can be easily traded in a brief period when needed. The excellent combination of low cost and ease of use makes mutual funds accessible. You can begin investing from anywhere in the world through brokerage firms, Asset Management Companies (AMC), or online investing platforms.
Your financial advisors review the statistics, financial statements, and other crucial understanding of the company before investing so that you can rest assured. In addition, however, you can track the performance of your funds using regular Net Asset Value (NAV) updates and monthly fund factsheets.
You can avail of tax benefits under Section 80C of the Income Tax Act for investments in Equity Linked Saving Schemes or ELSS. This is because the government wants its citizens to be financially secure and encourages the investment culture, following which these tax benefits are provided not only on the amount invested but also on the amount earned as mutual funds returns. This is a win-win for the investor, where your money sits in mutual funds, makes profits, and saves you taxes.
Investing in mutual funds is an excellent choice as you can put your money to work and grow wealth with even novice market knowledge. Also, as experts manage the funds, you do not have to worry about understanding mutual funds and the financial market. In addition, you are provided transparency, liquidity, the lowest lock-in period, and tax benefits with the mutual funds.
1
Mutual fund returns are generated through capital gains and dividend income. Capital gains occur when the value of the fund’s investments appreciates, while dividend income is earned from dividends paid by the underlying securities held within the fund’s portfolio.
2
Mutual funds come in various types, including equity, bond, money market, index, sector, and balanced funds. Each type of mutual fund has its own investment objectives, risks, and potential returns.
3
Actively managed mutual funds are overseen by fund managers who make investment decisions based on market research and analysis. In contrast, passively managed mutual funds seek to replicate the performance of a specific index or benchmark and typically have lower management fees.
4
Investors can invest in mutual funds through a Systematic Investment Plan (SIP), which involves investing a fixed amount regularly or via the lump sum route, where investors invest a single large amount at once. They can purchase mutual fund shares directly from the fund company or through a financial advisor or broker.
5
Yes, you can withdraw money from an open-ended mutual fund anytime. However, withdrawals might be subject to exit loads and tax implications.
6
Yes, you can invest as little as ₹100 in some mutual funds through Systematic Investment Plans (SIPs), depending on the fund’s minimum investment requirements.
1. What is Equity Mutual Funds: Meaning, Types & Benefits
2.Building wealth through regular investing
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
