Understanding Mutual Funds Investment

This article is not written by a financial advisor or expert. This is purely based on the author’s knowledge, study and internet details. The author did some study on Mutual Funds investment and hence wanted to share details here for others who are not from the financial background and looking to invest in Mutual Funds. This article is NEITHER SPONSORED and NOT ENDORSING anyone.

Mutual Funds Flow Chart

To summarize the different aspects of mutual funds please see the attached flowchart. A detailed description of each aspect is available below.

Large Cap vs Mid Cap vs Small Cap

  • Large Cap companies are well-established companies with a market cap of Rs. 20000 crore or above. Large Caps companies are listed among the top 100 companies.
  • Mid Cap companies are the companies whose market cap is more than Rs 5000 crore but less than Rs. 20000 crore. These companies are compact and listed among the top 100-250 companies.
  • Small Cap companies are the small companies whose market cap is less than Rs. 5000 crore. Companies listed above 250 are small cap companies.

Direct vs Regular

  • Direct version of mutual funds is those mutual funds that are offered directly by the fund houses or Asset Management Companies [AMC]. In direct mutual funds, no financial advisor, broker or intermediate companies involved hence the expense ration is low. Also return is higher than the regular as no brokerage has to be paid to any agent.
  • Regular version of mutual funds is those mutual funds that are bought through an intermediary. The expense ratio on these funds is higher because the intermediate companies or agents take some part as brokerage.

Growth vs Dividend

  • Growth type of mutual funds is those funds where the profit of the investment are re-invested and hence investor can earn a profit on the profit. This is good for a longterm investment where the investor does not need regular cash flow.
  • Dividend type of mutual funds is the funds where the profit of the investment are paid out to the investor at a regular interval. The paid out interval could be annual, quarterly, monthly, or daily. One type of dividend option is the dividend re-investment option, whereby dividends paid by the scheme are re-invested in the scheme.

Equity vs Debt vs Hybrid

  • Equity oriented funds are directly invested in the shares of the companies hence they are more volatile in terms of risk and returns.
  • Debt oriented funds are invested in Government Bonds, Corporate Bonds, Debentures and Fixed Deposits. These are low in risk and accordingly having lower growth rate.
  • Hybrid oriented funds are those funds where some part of the money get invested in equity and the rest in debt. They are moderately risky and moderate in terms of growth.

Risk vs Returns vs Redeem Scale

Summary

  • Mutual funds are a good platform to invest but there is risk involved in the investment.
  • Returns in MF is expected to be better than normal FD, PPF, PF etc.
  • Always try to invest in Direct Funds as it will give approx 1% of more returns as compared to Regular Funds.
  • Dividend or Growth depends on the individual’s requirement.
  • A longterm SIP investment will overcome the short term loss (if any).
  • One time lump sum amount can also be invested.
  • MF can be bought through DMAT account (like ICICI Direct, Axis Direct etc.) and apps (like ET Money, Groww, Paytmmoney, Kuvera, etc.)
  • MF can be bought directly through Asset Management Companies [AMC] as well (like TATA, Axis, SBI, UTI, ICICI etc.)

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Source: Knowledge Base, internet

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