Investment Horizon: 5+ years
Risk: High
Return Potential: High
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Fund tracks the underlying index returns. The fund doesn't try to outperform the index.
The fund invests in large, mid & small companies.Fund has the flexibility to find opportunities among any size of the companies.
Fund invest 25% of its assets each in large, mid & small cap companies. The objective is to provide investors equal exposure to all the 3 market caps.
Fund has a little concentrated portfolio comprising 20-30 stocks. The objective is to generate alpha, though it may create additional volatility.
Fund that invests in other funds rather than individual stocks.
Fund provides an exposure to international stocks. Diversifies your investments to other countries and to businesses which are global leaders
These funds are equity-oriented funds that primarily invest in stocks within the IT, technology, and related industries.
Funds investing in companies that follow social responsibility, assessing environmental, social, and corporate governance factors.
Fund invests in a portfolio of companies in pharmaceutical, biotechnology, hospitals & other healthcare related sector.
Fund create a portfolio of companies which are public sector units (PSU).
Fund invests in companies that benefit from rising consumption due to rise in population, income etc.
Fund invests in companies that are part of the financial industry. It includes banks, NBFCs, brokerage firms, insurance companies etc in their portfolio.
Dividend Yield funds allocate 70-80% of their total assets to stocks with higher dividend yields compared to the benchmark.
Fund is specifically meant for people who are looking to create a retirement fund. It has a lock-in of 5 years from the date of investment or retirement, whichever occurs first.
Fund is designed to accumulate amount to fund child's education, marriage etc. It comes with a lock-in of 5 years from the date of investment.
These funds come with a tax advantage under sec 80C of the income tax act. They have a lock-in of 3 years from the date of investment.
Fund invests in companies which are currently undervalued, but have a potential to increase in valuation.
Funds tend to invest against the prevailing investing pattern and themes in the market. These funds often deviate much from the benchmark.
Mutual Fund is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities. The fund is managed by a professional Fund Manager.
Investors get units of the fund or scheme at the current price which is known as NAV (Net Asset Value). After holding investment for the desired time, the value of the underlying securities increases and so is the NAV of the fund. Increase in NAV inturn increase the value of your investment and decrease impacts adversely. When you sell or place redemption order, you get the units sold at the prevailing price of the day you sell.
Mutual funds offer products that cater to the different investment objectives of the investors. These objectives can be achieved through the funds/schemes falling in these categories. Each category has its own investment guidelines and investors must follow them in order to get benefitted.
Investments in equity and equity related instruments involve a degree of risk and investors should not invest in the equity schemes unless they can afford to take the risk of possible loss of principal and volatility in value of their investment. However, there are ways and means to mitigate risk through efficient investment planning.
Equity shares and equity related instruments are volatile and prone to price fluctuations on a daily basis. There may be extreme volatility in the short-term.
The liquidity of investments made in the equities may be restricted by trading volumes and settlement periods. Settlement periods may be extended significantly by unforeseen circumstances. While securities that are listed on the stock exchange carry lower liquidity risk, the ability to sell these investments is limited by the overall trading volume on the stock exchanges. The inability of a mutual fund to sell securities held in the portfolio could result in potential losses to the scheme, should there be a subsequent decline in the value of securities held in the scheme portfolio and may thus lead to the fund incurring losses till the security is finally sold.
However, fund managers keep a track of the liquidity issues in any security and try to overcome it through diversifying the portfolio efficiently.
There may arise a risk due to company, sector specific or any country specific event. It may increase the volatility in the price of the securities in a portfolio. Investors may have to hold the portfolio till the impact of the event subsides in a portfolio.
Debt Securities are subject to the risk of an issuer’s inability to meet principal and interest payments on the on the due date(s) and may also be subject to price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (Market Risk).
The timing of transactions in debt obligations, which will often depend on the timing of the Purchases and Redemptions in the Scheme, may result in capital appreciation or depreciation because the value of debt obligations generally varies inversely with the prevailing interest rates.
Market value of fixed income securities is generally inversely related to interest rate movement. Generally, when interest rates rise, prices of existing fixed income securities fall and when interest rates drop, such prices increase. Accordingly, the value of a scheme portfolio may fall if the market interest rate rises and may appreciate when the market interest rate comes down.
This is risk associated with default on interest and /or principal amounts by issuers of fixed income securities. In case of a default, scheme may not fully receive the due amounts and NAV of the scheme may fall to the extent of default. Even when there is no default, the price of a security may change with expected changes in the credit rating of the issuer. It may be mentioned here that a government security is a sovereign security and is safer. Corporate bonds carry a higher amount of credit risk than government securities. Within corporate bonds also there are different levels of safety and a bond rated higher by a rating agency is safer than a bond rated lower by the same rating agency.
Credit spreads on corporate bonds may change with varying market conditions. Market value of debt securities in portfolio may depreciate if the credit spreads widen and vice versa. Similarly, in case of floating rate securities, if the spreads over the benchmark security / index widen, then the value of such securities may depreciate.
Liquidity risk refers to the ease with which securities can be sold at or near its valuation yield-to-maturity (YTM) or true value. Liquidity condition in the market varies from time to time. The liquidity of a bond may change, depending on market conditions leading to changes in the liquidity premium attached to the price of the bond. In an environment of tight liquidity, necessity to sell securities may have higher than usual impact cost. Further, liquidity of any particular security in portfolio may lessen depending on market condition, requiring higher discount at the time of selling.
This is the risk of failure of the counterparty to a transaction to deliver securities against consideration received or to pay consideration against securities delivered, in full or in part or as per the agreed specification. There could be losses to the fund in case of a counterparty default.
This arises when the borrower pays off the loan sooner than the due date. This may result in a change in the yield and tenor for the mutual fund scheme. When interest rates decline, borrowers tend to payoff high interest loans with money borrowed at a lower interest rate, which shortens the average maturity of Asset-backed securities (ABS). However, there is some prepayment risk even if interest rates rise, such as when an owner pays off a mortgage when the house is sold or an auto loan is paid off when the car is sold.
Investments in fixed income securities carry re-investment risk as the interest rates prevailing on the coupon payment or maturity dates may differ from the original coupon of the bond (the purchase yield of the security). This may result in the final realized yield to be lower than that expected at the time.
The additional income from reinvestment is the "interest on interest" component. There may be a risk that the rate at which interim cash flows can be reinvested is lower than that originally assumed.
As per SEBI guidelines on Categorization and Rationalization of schemes issued in October 2017, mutual fund schemes are classified as –
An equity Scheme is a fund primarily invests in equities and equity related instruments. These funds seeks long term growth but could be volatile in the short term. These are suitable for investors with higher risk appetite and longer investment horizon.
The objective of an equity fund is generally to seek long-term capital appreciation. Equity funds may focus on certain sectors of the market or may have a specific investment style, such as investing in value or growth stocks.
| Multi Cap Fund | At least 75% investment in equity & equity related instruments |
| Flexi Cap Fund | At least 65% investments in equity & equity related instruments |
| Large Cap Fund | At least 80% investment in large cap stocks |
| Large & Mid Cap Fund | At least 35% investment in large cap stocks and 35% in mid cap stocks |
| Mid Cap Fund | At least 65% investment in mid cap stocks |
| Small cap Fund | At least 65% investment in small cap stocks |
| Dividend Yield Fund | Predominantly invest in dividend yielding stocks, with at least 65% in stocks |
| Value Fund | Value investment strategy, with at least 65% in stocks |
| Contra Fund | Scheme follows contrarian investment strategy with at least 65% in stocks |
| Focused Fund | Focused on the number of stocks (maximum 30) with at least 65% in equity & equity related instruments |
| Sectoral/ Thematic Fund | At least 80% investment in stocks of a particular sector/ theme |
| ELSS | At least 80% in stocks in accordance with Equity Linked Saving Scheme, 2005, notified by Ministry of Finance |
Sectoral funds invest in a particular sector of the economy such as infrastructure, banking, technology or pharmaceuticals etc. Since these funds focus on just one sector of the economy, they limit diversification, and are thus riskier. Timing of investment into such funds are important, because the performance of the sectors tends to be cyclical.
Examples of Sector Specific Funds - Equity Mutual Funds with an investment objective to invest in
Thematic funds select stocks of companies in industries that belong to a particular theme - For example, Infrastructure, Service industries, PSUs or MNCs. They are more diversified than Sectoral Funds and hence have lower risk than Sectoral funds.
Equity funds may be categorised based on the valuation parameters adopted in stock selection, such as
Contra funds are equity mutual funds that take a contrarian view on the market. Underperforming stocks and sectors are picked at low price points with a view that they will perform in the long run.The portfolios of contra funds have defensive and beaten down stocks that have given negative returns during bear markets.
These funds carry the risk of getting calls wrong as catching a trend before the herd is not possible in every market cycle and these funds typically underperform in a bull market.
ELSS invests at least 80% in stocks in accordance with Equity Linked Saving Scheme, 2005, notified by Ministry of Finance. These funds have a lock-in period of 3 years (which is shortest amongst all other Sec 80C tax saving options). These are currently eligible for deduction under Sec 80C of the Income Tax Act upto ₹1,50,000
A debt fund is a fund that invests primarily in bonds or other debt securities. Debt funds invest in short and long-term securities issued by government, public financial institutions, companies, Treasury bills, Debentures, Commercial paper, Certificates of Deposit and others.
Debt funds can be categorised based on the tenor of the securities held in the portfolio and/or on the basis of the issuers of the securities or their fund management strategies, such as Short-term funds, Medium-term funds, Long-term funds, Gilt fund, Treasury fund, Corporate bond fund, Infrastructure debt fund, Floating rate funds, Dynamic Bond funds, Fixed Maturity Plan. Debt funds have potential for income generation and capital preservation.
| Overnight Fund | Overnight securities having maturity of 1 day |
| Liquid Fund | Debt and money market securities with maturity of upto 91 days only |
| Ultra Short Duration Fund | Debt & Money Market instruments with Macaulay duration of the portfolio between 3 months - 6 months |
| Low Duration Fund | Investment in Debt & Money Market instruments with Macaulay duration portfolio between 6 months- 12 months |
| Money Market Fund | Investment in Money Market instruments having maturity upto 1 Year |
| Short Duration Fund | Investment in Debt & Money Market instruments with Macaulay duration of the portfolio between 1 year - 3 years |
| Medium Duration Fund | Investment in Debt & Money Market instruments with Macaulay duration of portfolio between 3 years - 4 years |
| Medium to Long Duration Fund | Investment in Debt & Money Market instruments with Macaulay duration of the portfolio between 4 - 7 years |
| Long Duration Fund | Investment in Debt & Money Market Instruments with Macaulay duration of the portfolio greater than 7 years |
| Dynamic Bond | Investment across duration |
| Corporate Bond Fund | Minimum 80% investment in corporate bonds only in AA+ and above rated corporate bonds |
| Credit Risk Fund | Minimum 65% investment in corporate bonds, only in AA and below rated corporate bonds |
| Banking and PSU Fund | Minimum 80% in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds |
| Gilt Fund | Minimum 80% in G-secs, across maturity |
| Gilt Fund with 10 year constant Duration | Minimum 80% in G-secs, such that the Macaulay duration of the portfolio is equal to 10 years |
| Floater Fund | Minimum 65% in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/ derivatives) |
Dynamic Bond Funds alter the tenor of the securities in the portfolio in line with expectation on interest rates. The tenor is increased if interest rates are expected to go down and vice versa
Floating Rate Funds invest in bonds whose interest are reset periodically so that the fund earns coupon income that is in line with current rates in the market, and eliminates interest rate risk to a large extent.
The primary focus of short-term debt funds is coupon income. Short term debt funds have to also be evaluated for the credit risk they may take to earn higher coupon income. The tenor of the securities will define the return and risk of the fund.
Funds holding securities with lower tenors have lower risk and lower return.
Short-Term Fund combine coupon income earned from a pre-dominantly short-term debt portfolio with some exposure to longer term securities to benefit from appreciation in price.
FMPs are closed-ended funds which eliminate interest rate risk and lock-in a yield by investing only in securities whose maturity matches the maturity of the fund. FMPs create an investment portfolio whose maturity profile match that of the FMP tenor.
FMPs have potential to provide better returns than liquid funds and Ultra Short Term Funds since investments are locked in. Funds have Low mark to market risk as investments are liquidated at maturity.
Investors commit money for a fixed period & cannot prematurely redeem the units from the fund. FMPs, being closed-end schemes are mandatorily listed on stock exchange & investors can buy or sell units of FMPs only on the stock exchange after the NFO.
Units held only in dematerialized mode can be traded, therefore investors seeking liquidity in such schemes need to have a demat account.
Capital Protection Oriented Funds are close-ended hybrid funds that create a portfolio of debt instruments and equity derivatives. The portfolio is structured to provide capital protection and is rated by a credit rating agency on its ability to do so. The rating is reviewed every quarter. The debt component of the portfolio has to be invested in instruments with the highest investment grade rating.
A portion of the amount brought in by the investors is invested in debt instruments that is expected to mature to the par value of the capital invested by investors into the fund. The capital is thus protected. The remaining portion of the funds is used to invest in equity derivatives to generate higher returns.
Hybrid funds Invest in a mix of equities and debt securities. They seek to find a ‘balance’ between growth and income by investing in both equity and debt. The regular income earned from the debt instruments provides greater stability to the returns from such funds. The proportion of equity and debt that will be held in the portfolio is indicated in the Scheme Information Document
Equity oriented hybrid funds (Aggressive Hybrid Funds) are ideal for investors looking for growth in their investment with some stability.
Debt-oriented hybrid funds (Conservative Hybrid Fund) are suitable for conservative investors looking for a boost in returns with a small exposure to equity.
The risk and return of the fund will depend upon the equity exposure taken by the portfolio, higher the allocation to equity, the greater is the risk & return.
| Conservative Hybrid Fund | 10% to 25% investment in equity & equity related instruments; and 75% to 90% in Debt instruments |
| Balanced Hybrid Fund | 40% to 60% investment in equity & equity related instruments; and 40% to 60% in Debt instruments |
| Aggressive Hybrid Fund | 65% to 80% investment in equity & equity related instruments; and 20% to 35% in Debt instruments |
| Dynamic Asset Allocation or Balanced Advantage Fund | Investment in equity/ debt that is managed dynamically (0% to 100% in equity & equity related instruments; and 0% to 100% in Debt instruments) |
| Multi Asset Allocation Fund | Investment in at least 3 asset classes with a minimum allocation of at least 10% in each asset class |
| Arbitrage Fund | Scheme following arbitrage strategy, with minimum 65% investment in equity & equity related instruments |
| Equity Savings | Equity and equity related instruments (min.65%); debt instruments (min.10%) and derivatives (min. for hedging to be specified in the SID) |
| Retirement Fund | Lock-in for at least 5 years or till retirement age whichever is earlier |
| Children’s Fund | Lock-in for at least 5 years or till the child attains age of majority whichever is earlier |
| Index Funds/ ETFs | Minimum 95% investment in securities of a particular index |
| Fund of Funds (Overseas/ Domestic) | Minimum 95% investment in the underlying fund(s) |
A multi-asset fund offers exposure to a broad number of asset classes, often offering a level of diversification typically associated with institutional investing. Multi-asset funds may invest in a number of traditional equity and fixed income strategies, index-tracking funds, financial derivatives as well as commodity like gold.
This diversity allows portfolio managers to potentially balance risk with reward and deliver steady, long-term returns for investors, particularly in volatile markets.
“Arbitrage” is the simultaneous purchase and sale of an asset to take advantage of the price differential in the two markets and profit from the price difference of the asset on different markets or in different forms.
Arbitrage fund buys a stock in the cash market and simultaneously sells it in the Futures market at a higher price to generate returns from the difference in the price of the security in the two markets. The fund takes equal but opposite positions in both the markets, thereby locking in the difference. The positions have to be held until expiry of the derivative cycle and both positions need to be closed at the same price to realize the difference.The cash market price converges with the Futures market price at the end of the contract period. Thus it delivers risk-free profit for the investor/trader.
Hence, Arbitrage funds are considered to be a good choice for cautious investors who want to benefit from a volatile market without taking on too much risk.
Index funds are passively managed funds that aim to create a portfolio that mirrors a market index. The securities included in the portfolio and their weights are the same as that in the index The fund manager does not rebalance the portfolio based on their view of the market or sector
Index funds are passively managed, which means that the fund manager makes only minor, periodic adjustments to keep the fund in line with its index. Hence, an index fund offers the same return and risk represented by the index it tracks.
An ETF is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike regular mutual funds, an ETF trades like a common stock on a stock exchange. The traded price of an ETF changes throughout the day like any other stock, as it is bought and sold on the stock exchange.
ETF Units are compulsorily held in Demat mode. It is suitable for investors seeking returns similar to index and are not looking to outperform the index.
Fund of funds are mutual fund schemes that invest in the units of other schemes of the same mutual fund or other mutual funds. The schemes selected for investment will be based on the investment objective of the FoF
Gold ETFs are ETFs with gold as the underlying asset. The scheme will issue units against gold held, where each unit will represent a defined weight in gold, typically one gram.
The scheme will hold gold in form of physical gold or gold related instruments approved by SEBI. Schemes can invest up to 20% of net assets in Gold Deposit Scheme of banks. The price of ETF units moves in line with the price of gold on metal exchange. After the NFO, units are issued to intermediaries called authorized participants against gold or funds submitted. They can also redeem the units for the underlying gold.
International funds enable investments in markets outside India, by holding in their portfolio equity or debt securities. International equity funds may also hold some of their portfolios in Indian equity or debt security.
In fact, Mutual funds are meant for of common investors who may lack the knowledge or skill set to invest in securities market. Mutual Funds are professionally managed by expert Fund Managers after extensive market research for the benefit of investors. A mutual fund is an inexpensive way for investors to get a full-time professional fund manager to manage their money.
Mutual funds can be for the short term or for longer term based on one’s investment horizon and objective.
There are different types of mutual fund schemes – which invest in different types of securities – in equity as well as debt securities that are suitable for different investor needs.
In fact, there are various short-term schemes where you can invest for a few days to a few weeks to a few years e.g., Liquid Funds are low duration funds, with portfolio maturity of less than 91 days, while Ultra short-Term Bond Funds are low duration funds, with portfolio maturity of less than a year. There are Short-Term Bond Funds which are medium duration funds where the underlying portfolio maturity ranges from one year – three years. Then, there are Long-Term Income Funds which are medium to long duration funds with portfolio maturity between 3 and 10 years.
While Equity Schemes are most suitable for a longer term, debt mutual funds are suitable for investors with short term (less than 5 years) investment horizon.
Mutual Funds invest in stock market (i.e., equities), bond market (corporate bonds as well as govt. bonds) and Money Market instruments such as Treasury Bills, Commercial Papers, Certificate of Deposit, Collateral Borrowing & Lending Obligation (CBLO) etc. Many of these instruments are not available to retail investors due to large ticket size of minimum order quantity (such as G-Secs) and hence, retail investors could participate in such investments through mutual fund schemes
This is a common misconception. A mutual fund's NAV represents the market value of all its underlying investments. NAV of a fund is irrelevant, because it represents the market value of the fund’s investments and not the market price. Any capital appreciation will depend on the price movement of its underlying securities. Let us understand this through an illustration.
Suppose, you invest ₹10,000 each in scheme A whose NAV is ₹20 and scheme B (whose NAV is say, ₹100. You will be allotted 500 units of scheme A and 100 units of scheme B. Assuming that both schemes have invested their entire corpus in exactly same stocks and in the same proportions, if the underlying stocks collectively appreciate by 10%, the NAV of the two schemes should also rise by 10%, to ₹22 and ₹110, respectively. Thus, in both the scenarios, the value of your investment increases to ₹ 11,000.
Thus, the current NAV of a fund does not have any impact on the returns.
Absolutely incorrect. One could start investing mutual funds with just ₹5000 for a lump-sum / one-time investment with no upper limit and ₹1000 towards subsequent / additional subscription in most of the mutual fund schemes. And for Equity linked Savings Schemes (ELSS), the minimum amount is as low as ₹ 500.
In fact, one could invest via Systematic Investment Plan ( SIP) with as little as ₹500 per month for as long as one wishes to.
Holding mutual fund Units in Demat mode is absolutely optional, except in respect of Exchange Traded Funds. For all other schemes, including the close-ended listed schemes like Fixed Maturity Plans (FMPs), it is entirely upto the investor whether to hold the units in a Demat mode or in conventional physical accountant statement mode.
This is a very common misconception because of the general association of Mutual Funds with shares. One needs to keep in mind that the NAV of a scheme is nothing but a reflection of the market value of the underlying shares held by the fund on any day. Mutual Funds invest in shares, which may be bought or sold whenever deemed appropriate by the Fund Manager depending on the scheme’s investment strategy (Buy-Hold-Sell). If the Fund Manager feels that a particular stock has peaked, he can choose to sell it.
A high NAV does not mean the fund is expensive. In fact, high NAV indicates a good performance of the scheme over the years.
Mutual fund ratings are dynamic and based on performance of the scheme over time – which in itself is subject to market fluctuations. So, a Mutual fund scheme that may be on top of the rating chart currently, may not necessarily maintain the same rating month after month or at a later date . However, a top rated fund is a good first step to short list a scheme to invest in (although past performance does not necessarily guarantee better returns in future). Investment in a mutual fund scheme needs to be tracked with respect to the scheme’s benchmark to evaluate its performance periodically to decide whether to stay invested or to exit.
There are 2 ways to invest in mutual funds Systematic Investment Plan (SIP) & Lumsum.
SIP is the most common & talked about way of investing in mutual funds. This option gives you a disciplined approach towards investing & accumulating wealth over time. You may opt certain amount to be deducted monthly from your designated bank account & invested in selected schemes.
SIP help you to counter market volatility as you buy at a regular interval and at higher & lower prices of the market. It gives you an advantage of Rupee Cost Averaging & slowly building wealth in a disciplined manner.
Lumsum investing is for the investors who want to invest a bigger amount in one go and can't invest that same amount monthly. Lumsum investing is considered risky compared to SIP mode, as all your amount will be invested at a single price, which might be riskier if markets gets volatile.
Lumsum investing can work in your favor if you use Systematic Transfer Plan (STP) to your advantage.
STP gives you an advantage of buying a equity mutual fund at various prices so that you don't get stuck at a high price.
In investing though STP you may invest lumsum in a debt fund where you may get 5-6% annually & is not affected directly by stock market volatility. Then you may instruct to transfer money in equity mutual funds in installment & get the benefit of buying at different prices at a set time interval. STP has an option to invest & transfer your money in various time intervals like daily, weekly, monthly, quaterly etc.
You may invest through SIP & Lumsum together. Invest your regular monthly income through SIPs and any lumsum amount you have can be invested through STPs.
Applicable for the Financial Year 2023-24
* With indexation $Without indexation@IDCW = Income Distribution cum Capital Withdrawal
Tax & TDS are subject to applicable Surcharge and Health & Education Cess at the rate of 4%.