Mutual funds offer an excellent investment opportunity for individuals looking to venture into the world of investing. Essentially, mutual funds are professionally managed investment portfolios that are assembled by pooling money from different investors.
They are an attractive investment option as they are managed by experienced fund managers who make investment decisions on behalf of the investors. This allows novice investors to enjoy the same gains as experienced investors for a fraction of the cost.
To begin with, it is important to understand that mutual funds come in different categories, each with its own set of investment objectives. Some mutual funds invest solely in stocks, while others invest in bonds or a combination of asset classes.
Investors can start their mutual fund portfolio by investing a small sum of money on a regular basis through a Systematic Investment Plan (SIP). Once they get a hang of things, they can increase their investments in mutual funds to reap maximum benefits.
SIP allows investors to invest a fixed amount of money on a regular basis, such as monthly, in mutual funds, thereby ensuring that they make the most of rupee cost averaging. For example, if Chandru decides to invest INR 10,000 per month through SIP in a mutual fund that has a net asset value (NAV) of INR 50, and the NAV increases to INR 55 in the following month, he would have been able to buy 200 units of the mutual fund initially and 182 units in the following month.
Calculating the return on investment of a mutual fund is essential to gauge its performance and suitability for an investor. Investors can use a SIP return calculator to calculate the expected returns from their SIP investments, considering different investment tenures.
As of writing, some of the best-performing mutual funds in India include, but are not limited to ICICI Prudential Equity & Debt Fund, HDFC Small Cap Fund, Kotak Standard Multicap Fund, Axis Long Term Equity Fund, and SBI Bluechip Fund.
Besides offering high returns, tax-saving mutual funds also provide tax benefits to investors, under Section 80C of the Income Tax Act, 1961. Investors can claim tax deductions on investments up to INR 1.5 lakhs in certain tax-saving mutual funds.
Overall, mutual funds provide investors with an opportunity to garner high returns, even with a small sum of money, while enjoying professional management. However, it is important for investors to gauge all the pros and cons of trading in the Indian financial market, and consult a financial advisor before making any investments.
