Mutual Fund

A mutual fund is an investment vehicle where many investors pool their money to earn returns on their capital over a period.

Why Invest in Mutual Fund

Mutual Fund offers a wide range of benefits to investors and is managed by Proffesionals of the field. At Smita Investment we have team of professionals helping your money to grow for future requirements.

1.Diversification
Mutual Fund Investments are done basically in two main asset classes - Debt end equity. Some funds are pure debt, and some invest in just equity; others are balanced or hybrid.
Investing in mutual fund benefit to have get exposure to a variety of shares or fixed income instruments. As it is rightly said "Do not put all your eggs in one basket", your investment are across a diverse range of assets.

2.High Liquidity
In open-ended mutual funds, you can buy and sell your units at any time. The total redeemable or buyable value is based on the fund's net asset value(NAV) for that day.

In case your investment is close-ended, it can be traded in the stock exchange, as offered by some schemes. So close-ended funds too can be liquid.

So, whether you buy open-ended or close-ended funds, there’s always a high level of liquidity. Do note that some Mutual Funds like Tax Savings Funds (ELSS) come with a lock-in period of 3 years.

3.Convenience
When you are looking at convenience and timesaving opportunity, Mutual Funds are an ideal investment option. With low investment amount alternatives. Also the ability to buy or sell them on any business day and a multitude of choices based on an individual’s goal and investment need, investors are free to pursue their course of life while their investments earn for them.

4.Tax Liability
One of the best Benefits of mutual funds is you can save income tax. Some Mutual Funds offer Tax benefit under section 80C of the Income Tax Act.
Eg. If you invest in an ELSS fund, you can reduce your taxable income by as much as Rs 1.5 lakh under Section 80C of the Income Tax Act - 1961.

5.Managed by Experts
Mutual Funds are Managed by Professional Fund managers along with research team that continuosly analyses the performance and prospects of companies who have years of experience handling different types of assets. Which helps to manage your investments and get higher returns.

6.Risk Management
There's Fund for everyone. There are over 2500+ currently active schemes. As an investor, you get to choose between high, medium and low risk schemes. However, the reward is directly proportional to risk. Higher the risk, higher the returns.

7.Cost Efficient
As compared to investing directly in capital markets biggest advantage for any investor is the low cost of investment that mutual funds offer.

8.Safe & Transparent
No Worry of your investments as Every mutual Fund is managed & regulated by SEBI, So you investment is Safe. You are provided with regural information about the current value of investment, along with their strategy and outlook, which gices a clear picture of how your investments are doing.

Types of Mutual Fund

The most comprehensive, easy and flexible ways to create a diversified portfolio is Mutual Funds investments. SEBI intends to make Mutual Fund investments easier for the investors as it has a wide spectrum.
The Mutual Fund are classified in five different types.

1. Equity Funds
These are the most popular type of mutual fund. They are riskiest mutual fund, but ofcourse can give you the highest return. SEBI has categorised equity mutual funds into 10 broad categories.
The most important categories of equity mutual funds are:
1. Large-cap
2. Midcap
3. Small-cap
4. Tax Savings Funds

2. Debt Funds
This type of mutual funds is less risky. As the money of this fund is invested in government bonds and corporate bonds. SEBI has categorised debt funds into 16 broad categories.These bonds give a fixed interest during the fixed period.
The classification of debt schemes is based on Macaulay duration, maturity and credit ratings. Macaulay duration is a measure of how the price of a bond will change in response to movement in interest rates.
Few of Debt Funds you can choose according to your need:
1. Liquid Fund
2. Short Term Plan
3. Overnight Fund
4. Gilt Fund

3. Hybrid Funds
These Funds are a mix of Equity and debt mutual fund, which invests in share and bond both. You can get higher return but with the lesser risk.
The main categories of the hybrid funds are:
1. Conservative Hybrid Fund
2. Balanced Hybrid Fund
3. Aggressive Hybrid Fund
4. Dynamic Asset Allocation

4. Solution Oriented Funds
These type of funds are created to achieve a specific target. SEBI has introduced Retirement Fund and Children's Fund schemes under this Category.
Children's Fund have a Lock-in period of 5 years or if he turns 18 years. Designed to accumulate wealth for the child education.
Retirement Fund have a lock-in period of 5 years or till retirement, whichever is earlier.

5. Other Funds
SEBI has categorise Index Funds/ETFs and Fund of Funds(Overseas or Domestic) in Other funds.

What is SIP?

Systematic Investment Plan is a smart way of investment into mutual fund schemes. Through it, you invest a fixed amount at a regural interval.

*Benefits Of SIP

Rupee-Cost Averaging
The main feature of SIP is Rupee cost averaging. Because of this feature, it is considered a good way to mutual fund investment. Buy More units when markets are low. This reduces your overall cost of investment.

Power of Compounding
The basic principle of Compound interest implies that small amounts invested over a long period of time would result in a larger return compared to a one-time investment.

Convenience
here can be no convenient way of investing other than SIP for beginners.It Allows to start your investment with as low as Rs 500 only.

What is STP?
Systematic Transfer Plan allows investors to shift their financial resources from one scheme to the other. STP plan allows investors to give consent to a mutual fund to periodically transfer a certain amount/switch certain units from one scheme and invest in another scheme of the same mutual fund house.

Benefits of STP
1. Rupee Cost Averaging
This is basically allowing investors to lower thier average costs incurred on investments. Making investor's purchase average price and protects him catching a market high.

2. Rebalancing Portfolio
STP facilitates in rebalancing the portfolio by allotting investments from debt to equity or vice versa. If your investment in debt increases money can be reallocated to equity funds through an STP and if your investment in equity goes up money can be switched from an equity to a debt fund.

3. Power of Compounding
Like SIP, Systematic Transfer plans too facilitate Power of Compounding.

Power of Compounding
Compounding refers to the reinvestment of earnings with the same rate of return to constantly growing principal amount. The great thing about compounding is that you will eventually reach a point where the amount of money reinvested will become greater than the original principal amount.

Lets Consider the Power of Compounding with an example:

Mr. Amar invested Rs.1,00,000 as a lump sum this year. He is going to earn an interest of 12% on this investment every year. Now let's see how much interest Amar earns over 5 years, if he takes his interest out each year, as compared to letting the principle of compounding work for him.

We can see that by merely reinvesting the interest earned on his principal amount, Amar manages to earn more interest on his one-time investment as compared to him taking his interest out each year. This shows the power of compounding.

What is ELSS:
ELSS is quite the same as a diversified equity fund which invest a major portion of their corpus into equity or equity-related instruments. ELSS are well known for tax saving schemes since they offer tax exemption of up to Rs. 1,50,000 from your annual taxable income under Section 80C of the Income Tax Act. ELSS has a lock-period of three years.

Benefits of ELSS

Tax Exemption
ELSS mutual fund savings offers tax saving opportunity, along with high investment growth, what more can you ask for. You can invest into ELSS and deduct upto Rs. 1,50,000/- from your taxable income to effectively reduce your tax liability.

Disciplined Investment
Investment in ELSS requires a minimum lock-in of 3 years.This forcefully embeds a good habit to stay invested for a longer period.

Diversification
Investment portfolio of ELSS consists of balanced allocation to different asset classes- equity and debt securities. Allocating assets to large cap, mid cap, small cap equity stocks. Via ELSS, one can easily diversify their overall investment portfolio and effectively mitigate market risk.

Debt Mutual Fund and Fixed Deposit

The two most popular ways of investing are - Fixed Deposits & Debt Mutual Funds. Considering these two methods of investment are normally do meet primary goals of an investor. Bcoz, this are low risk investment method, which seel returns in 5years & to gain atleast 8% to 9% revenue(Currently this range is lesser). Apart from certain benefits, features that differentiate them. The difference in the way they work can be of advantage or disadvantage depending on the type of investor one is.

A Debt Mutual Fund or a fixed-income fund invests a significant portion of your money in fixed-income securities such as Corporate and Government Bonds, corporate debt securities, and money market instruments etc. By investing money in such avenues, debt mutual funds lower the risk factor considerably for investors.

Fixed deposit is a financial investment instrument offered by banks and non-banking financial companies, wherein investors can deposit money and get higher rate of interest than normal savings account.

Difference in Debt Mutual Fund and Fixed Deposit 

Variety
When it comes to fixed deposits there’s not all that much of variety. You can invest in fixed deposits at the post office or at your bank. The Interest Rate varies as per banks, while small cooperative bank may offer higher rates, a large bank won't pay out so much. Certainly, deposits at smaller banks involve much more risk.
On the other side Debt funds offer much more variety than FDs. These Funds invest in government bonds, PSUs, Money Market, Corporate Debentures, a mix of equity and debt and so on.In both Rish and Returns are Different for each type of Fund.

Taxation
Both Fixed Deposits and Debt Funds are taxed differently. in Fixed deposits are added to your taxable income and pay income tax according to that income. While in case of debt funds, we have to pay capital gains tax. Debt funds if redeem before three years of investment will get same treatment as a fixed deposit -that is, gains will be added to your income. If held for over three years, the tax on debt funds is 20 per cent with indexation, and 10 per cent without indexation. Indexation adjusts the purchase value of your investment for inflation, reducing the capital gain, and hence help to reduce your tax burden.

Liquidity
Open-ended debt funds' proceeds are credited within a period of two to three working days depending on factors such as whether an ECS mandate is registered.
Fixed deposits are less liquid. You can make premature withdrawals, but you may get a lower interest rate on the withdrawn amount.

Tenure
Debt funds are open-ended and have no fixed tenure. While Fixed Deposits are for a fixed period of time(range from a week to five years).

Risk
In a fixed deposit, since the investment is made in one entity – the bank – you are well aware of the risk involved. As smaller banks involve more risk, large banks involve less so. While in a debt fund invests in a variety of instruments, it could be hard to gauge the risk.

What is SWP?
Systematic withdrawal plan commonly known as SWP. SWP is a facility offered by mutual funds to allow redeemtion of units in small portions at regural intervals to the investors so that short term goals or monthly income needs are fulfill. SWPs most common investors are Retirees and senior citizens as such individuals require a fixed monthly income from their investment corpus. Also, SWP investors are also individual who are willing to pay EMIs, pay bills or any other expenes.

Benefits of SWP
SWPs is a wise investment strategy for two main factors:

1.Fixed Income
People who are looking for regural income over a period of time have a good choice of SWP. As, only the appreciation made on investment amount is withdrawn. Which helps to enjoy the gains on a regular interval while keeping our capital invested.

2.Tax Efficiency
Withdraws through SWP, the amount doesn't attract any tax. Though the capital gains occurred on the withdrawals are taxable.