1. Back to HA Learn
  2. »
  3. Taxation
  4. »
  5. Mutual Fund Investment
types of mutual funds in India

Mutual Fund Investment

Mar 21, 2022

Official HA Logo

HA TAX

World’s Best Accounts Outsourcing Platform

Know More

Contents

Mutual fund investment sounds a bit complicated but in reality, it can be understood even by kids. It’s mostly seen that initial investors get attracted to Mutual Fund Investment rather than understanding the concept behind it. As there are several mutual fund investments available, investing wisely should be the objective of individuals.

In simple terms, Mutual Fund Investment is a portfolio of securities (like money market instruments, stocks, bonds, and other similar assets). The portfolio is formed by a pool of money that is collected from small or individual investors. The portfolio is managed by an Asset management company under the fund money manager. 

Fund managers are individuals who have expertise in managing investment and have knowledge of the market. Asset Management Company charges some monetary amount for managing Mutual Fund Investments. 

There are many decisions which one gets like, interest or dividend and capital appreciation and one also gets options to re-invest. Overall there are many growth options that one gets. 

From Business Registrations to Tax filings, HA Experts will take care of all your compliances.
Call: 7788993390
Email: letstalk@hafintax.com

Mutual Fund Investment Classification

Mutual Fund Investment can be classified into various types depending upon the different needs of the user. Broadly, they are classified into the following categories:

Organizational structure: Open-ended, Close-ended

Portfolio: Equity, Debt, Money Marked Instruments, Multi-Asset

Goal-Oriented:  Retirement funds, welfare funds

Investing: Growth, Liquidity, Income

This is not an official Classification. These classifications change as per the views of an investor. Many interpret this classification in many ways.

Some of the important aspects that one should keep in mind before planning for mutual fund investments are:

  1. Clear financial objectives
  2. Well decided mutual fund types
  3. Diversify portfolio
  4. SIP investment planning
  5. KYC documents and Net Banking be through

Among all these 5 aspects one stands the major as it is a means to verify the identity of the investor. KYC stands for Know Your Customer, is a process of verifying the identity of the customer and individual investment prospects. This is done to reduce illegal acts and practices and introduce a more transparent environment. With respect to mutual fund investment, KYC is needed to ensure that deposits are made to real individuals. As to bring uniformity in the system and a systematic approach across SEBI-registered intermediaries KYC documents stand as one of the important investors’ identities documents. Not only for SEBI but also for stockbrokers, venture capital funds, portfolio managers, and mutual fund companies managing becomes easy.

Documents that are required for successfully carrying out KYC are-

  • Identity Proof (PAN card, Driving License, Copy of Passport, Voter ID, Aadhar Card, or Bank Photo Passbook)
  • Address Proof (Aadhar Card, Driving License, Rental Agreement, Voter ID, Ration Card, Latest Bank Passbook, Recent Demat Account Statement, Passport Copy, Recent electricity, mobile, or landline bill)

The procedure of completing KYC is very simple and can happen via offline or Aadhar Based biometric. 

Mutual funds are of varying types based on the type of asset, class, structure, and risk. The other differentiation type is based upon open-ended and close-ended mutual fund Investment. 

HA Courses
HA Practical Training Courses.
          Online Live/ In-Office

HA TAX offers Online live or in-office practical training courses for those who are looking to learn Accounting & Taxation courses. These courses are aimed at students, working professionals and business owners who are looking forward to practising on their own.

Pre-requisite for Mutual Fund Investment

Mutual fund investment requires a Demat account. This is the type of account that is used to hold government securities, shares, bonds, and exchange-traded funds apart from mutual funds. It was first introduced in 1996 when physical share certificates were converted into electronic form. All Demat accounts are taken care of by National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). For investors, it provides a central place for holding all one’s investments. Apart from it, there is a range of benefits which one gets rather than using physical storage. The account automatically updates in every transaction and has increased the flow of security exchange.

While opening an account it is mandatory to read the entire document clearly and get know-how about the technology and tech aspect.

With just, 5 simple one can easily open a Demat Account

  1. Select a depository participant after thorough research.
  2. Submit all the required documents required for opening an account
  3. Terms and Conditions list has to be accepted by individual and pay the stated charges
  4. The staff of the Demat account carries out in-person verification (all the required documents should be kept handy)
  5. After approval, one gets account access details

Financial instruments like, mutual fund investment and stocks help individuals to earn an inflation-beating return over time. But before making any mutual fund investment or any investment, one needs to analyze one’s risk appetite. As stocks are comparably riskier than mutual fund investment, extensive research work is needed before pouring money into them. Whereas in another case all the research work is carried out by others but is chargeable.

A benefit of hiring a fund manager can be reaped by naive investors as tracking, monitoring, allocating stocks, and picking up the right stocks is made easy. At the same time, investors can have intensive discussions with the fund manager and treat discussions as knowledge transfer sessions. It is already established that equity diversified mutual funds have the advantage of reducing the risk by diversifying a portfolio. On the other hand, stocks are vulnerable to fluctuations in the market, and the performance of one stock can’t compensate for another. 

To protect from volatility one should invest in a diversified portfolio, that is, one should invest in around 50 stocks. Moreover, investment in equity diversified mutual funds is a better option as it is less costly. If an individual is handling all by himself then a portfolio of 25- 30 stocks is enough to manage (but still managed by a fund manager is more productive).

With respect to the controlling aspect while investing in stocks, one gets more flexibility to withdraw or select. Talking about time management, in mutual funds, one saves time as well feel relaxed. You must invest in stocks and equity funds with a long-term investment horizon. However, you must be able to time your exit from stocks. You may follow the buy and hold strategy with equity funds to achieve your long-term financial goals.

HA TAX
Join HA TAX. The perfect destination for all your needs.

HA TAX takes care of a wide range of services ranging from accounting, taxation, payroll, audit support, business registrations, food licenses, trade licenses, and much more. Get connected with experts at a price that is affordable like never before.

About

HITAKSH LLP is a service-providing platform aimed at modernizing the way financial services are provided. Our mission is to provide taxation & accounting services at an affordable price and with the utmost integrity. With the same level of dedication & effort, we tend to the needs of individuals, businesses, companies, and enterprises. HA TAX App is a product of HITAKSH LLP. Use our Chat-based Mobile and desktop application for processing, tracking, and chatting with your Dedicated CA right from your mobile or laptop. HITAKSH is now providing country specific accounting needs to over 10 countries.

Join HA TAX.