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All You Need to Know About Mutual Fund Investment

Rolling stone gathers no moss, likewise, roll money for brighter prospects. Mutual Fund investment is the latest tool of investment. Many people are aware and many people are becoming aware of the concept. People are getting convinced to invest in mutual funds after seeing their returns. This is surging the job prospects in the mutual fund sector. Finance opportunists are trying their luck to get established in this sector. This article will provide you with all you need to know about mutual fund investment and its job prospects.

Mutual Fund Investment

The Mutual Fund sector in India beholds sustainable and astonishing growth. It is becoming a favourite sector of investment for all classes of people, especially middle and upper-middle-class people. Recent data from AMFI exhibits that net Assets Under Management (AUM) soared to INR 49,04,992 crore in 2023. The figure indicates how mammoth is the growth of mutual funds in India. A hunt through this topic will give a vivid idea about all you need to know about Mutual Fund Investment.

History of Mutual Fund

Before we hover on to the nitty-gritty of Mutual Funds, we should know its bygone days.

The mutual fund is part of investment funds. Investment funds came into existence in the Dutch Republic. The United States saw the birth of mutual funds in 1890. Abraham van Ketwich, an Amsterdam businessman, has formed a trust known as Eendragt Maakt Magt, which means ‘unity creates strength’. It aims to provide small investors with diversified opportunities. In 1890, the US observed close-end mutual funds. In 1924, the US started open-end mutual funds.  This has led to the growth of mutual funds in the US.

Do you know how mutual funds gained popularity in India? In India, mutual funds came in a step-by-step process. The year 1963, saw the emersion of Unit Trust of India (UTI). This is considered the introduction of the first retail investors and marked the starting of mutual funds. Below are the chronological steps that helped mutual funds grow.

The first phase is from 1964 – 1987. In this period, the market was dominated by UTI. In 1964, the Unit Scheme was launched by UTI which has seen INR 6,700 crores of AUM. This was the first scheme launched.

The second phase is from 1987 – 1993. Here, many public sector banks started to sell mutual funds. Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) have glared at the entry of mutual funds in the public sector. In 1987, the SBI Mutual Fund was established. Likewise, many banks like Punjab National Bank and Bank of Baroda developed a mutual fund sector. In 1989, LIC established its mutual fund and GIC came up with its mutual funds in 1990. During this period there were INR 47,004 crores of AUM.

The third phase is from 1993 – 2003. This period has seen the mutual funds growing in the private sector. The entrance of private sector mutual funds became smooth with the commencement of the Securities and Exchange Board of India (SEBI) in 1992. SEBI emerged as the regulatory body for safeguarding the interest of the securities market. Kothari Pioneer was the first private-sector Mutual Fund in 1993.  This segment of mutual funds has seen massive growth in the industry. Also, the foreign sponsors were keen to set up mutual funds in India. This period has witnessed AUM growth of INR 1,21,805 crores.

The fourth phase is from 2003 – 2014. All gain and no loss are not something desired in the financial market. The last phase and this phase have seen the mergers in mutual funds. Due to its immense popularity, the UTI Act was divided into two segments. One is the Specified Undertaking of the Unit Trust of India (SUUTI) and the second is UTI Mutual Funds that work under the SEBI mutual fund regulations. The period also witnessed a financial crisis in 2009. This crisis has brought new modifications to the mutual fund industry.

The fifth phase is from 2014 – current. The current phase is betting on the growth of the mutual fund industry. Many recent laws and regulations are supporting the development and growth of investment banks. In 2012, SEBI came up with various new methodologies to “re-energize” and penetrate the mutual fund industry in India. Mutual fund distributors are trying to connect with investors who can invest in appropriate schemes to provide them the benefit of investing in mutual funds. Mutual funds have also increased the growth of Systematic Investment Plans (SIP). As of 2023, there are nearly 7.44 crore SIP accounts.

This is what all you need to know about mutual fund investment history. This history will help you to learn the subject in a better way. As you come to know how it all started and the phases that led to the development of mutual funds, we can ponder on other aspects of mutual funds.

 

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Meaning of Mutual Fund

Mutual funds are a varied investment option from fixed deposits, savings accounts, buying gold and others as such.

It is a type of investment option. In this type of investment, a large amount of money is gathered from different investors who want to invest their money in the same bonds, equities, securities and other financial instruments. The profit received is then divided among all the investors in a proportionate manner after deducting the taxes and other charges as applicable by SEBI. The Net Asset Value (NAV) is calculated to distribute the money among investors. This whole process is conducted by mutual fund managers.

Mutual funds are considered best for those who are willing to invest in small amounts. It is also suited for those who are running out of time and are not able to check the stocks each day. The fund managers in mutual funds take all the risks check all the details and invest the money of investors in such stocks that gain them benefit. In return, they charge their applicable fees.

A small instance can help you to understand the subject from a better perspective. 20 shares of company A are INR 50. A total of five investors can buy it, contributing INR 10 each. Now comes to money distribution. Each investor will get according to its contributed price. So, each investor receives 4 units (20/5=4). The cost per unit is INR 2.5 (50/20 = 2.5). Hence the initial investment is INR 10 (4*2.5=10) This is a simple case that explains the total mutual fund investment concept.

The meaning or the definition of mutual funds is now vivid. This is one of the major things when all you need to know about mutual fund investment concepts knock your mind.

Another aspect that all you need to know about mutual fund investment is some of the companies of mutual funds. They are:

  • Axis Asset Management Company Ltd.
  • Aditya Birla Sun Life AMC limited
  • Baroda Asset Management India Ltd.
  • BNP Paribas Asset Management India Private Ltd.
  • BOI AXA Investment Managers Private Ltd.
  • Canara Robeco Asset Management Company Ltd.
  • DHFL Pramerica Asset Managers Private Ltd.
  • DSP Investment Managers Private Ltd.
  • Edelweiss Asset Management Ltd.

Types of Mutual Funds Schemes

Usually, mutual funds are classified as open-ended and close-ended actively funded and passively funded. Mutual funds are classified based on various aspects. They are classified on terms like organizational structure, portfolio, investment objective and solution-related.

Organizational StructureOpen-ended, Close-ended, Interval
Management of PortfolioActively managed, Passively Managed
Investment ObjectiveGrowth, Income, Liquidity
Underlying PortfolioEquity, Debt, Hybrid, Money Market Instruments, Multi-Assets
ThematicTax saving, Retirement benefits, Child Welfare,
Exchange Traded Funds
Overseas Funds
Fund of funds

1. Open-ended Funds

This mutual fund scheme is similar to the savings account. It is a continuous process. Full year on all business days, we are allowed to subscribe and redeem at the current NAV. It does not have any fixed maturity date.

2. Close-ended Funds

This mutual fund scheme is related to stocks. It is listed on the stock exchange and is traded like other stocks. The subscription is possible only on IPO. It has a fixed maturity date and period. It can be redeemed only when it is matured.              If any investor wants to exit the scheme can do it after selling their units.

3. Actively Managed

As the term goes, this mutual fund scheme is managed by the fund manager through and through. They ensure that the investor gets good returns. They decide on behalf of the investor which shares or stock to buy or sell that redeem the ultimate profit. In this scheme, the fund manager manages and monitors the fund’s portfolio and exceeds the scheme’s benchmark.

4. Passively Managed

Passively managed mutual fund schemes are managed by the fund managers but passively. That means they do not exceed the scheme’s benchmark but retain the same as the index. This scheme follows the market index. In this case, the fund manager does not use his experience to buy, sell or hold any shares, they maintain the exact proportion of the scheme’s benchmark.

Categories of Mutual Fund

Mutual funds can be classified in many ways. Things all you need to know about mutual fund investment is how many types of mutual funds exist. These help us to understand where we should invest our money. Below are some of the types of mutual funds with briefings about them.

Equity Funds

Stock funds mean investing in stocks. It is also referred to as a stock fund. These are of three types. Large-cap, Medium-cap and Small-cap.

In large-cap funds, the investment is made in companies with high market capitalization. Market capitalization means the presence of the company in the market. The higher the presence, the higher the capitalization. Higher market capitalization companies have a value of $10 billion or more. Though they offer slow growth, they offer stability and sustainability. They are less volatile.

In Medium-cap funds, the investors invest in medium-market capitalization companies. They have a value of worth $2 billion to $10 billion. They offer higher growth than large-cap funds.

In Small-cap funds, investment is made in small-market capitalization companies. These companies are emerging and young companies. Their value is worth $300 million to $2billion. They are volatile. They offer significant growth.

Debt Funds

They are referred to as Income funds or Bond funds. This type of mutual fund applies to those who do not want to take risks and invest in fixed-income tools like government bonds, corporate debt securities and others as such.

Choosing debt funds can be helpful for specified reasons like after retirement, education of children and getting assets like a home.

Liquid Funds

Liquid funds are usually for a very short tenure. In this type, the investment is made in high-liquid money market instruments and debt securities. It is a bit like a fixed deposit with a short-term period. Liquid funds do not get much of a return as the fund managers concentrate on capital protection.  The redemption tenure is between 1 day to 3 months.

Money Market Funds

These types of funds are risk-less funds, with low returns. They are usually for short-term periods. In this type, the principal is safeguarded. They are safe funds.

Balanced Funds

 As the name goes in this type of mutual fund, a balance is maintained between equity funds, debt funds and money market funds. It gains its most profit from equity funds and the debt funds protect them against the downturn.

Exchange Traded Funds (ETF)

In exchange-traded funds, a security tracks an index, bonds and commodity. The indexes are CNX Nifty and BSE Sensex. In this type of mutual fund, they are not in a rush to outperform, but they try to be with the market. It is based on the NAV of the underlying stock that exchange-traded funds represent.

These are some of the important types of mutual funds, that you should be aware of before investing. All you need to know about mutual fund investment is that these types should return maximum benefit to the investors.

So far, we have studied in detail about mutual fund investment and read about its various types and categories. Now let us embark on the fact, of how to invest in mutual funds.

Ways of Investing in Mutual Funds

There are two ways to invest in mutual funds. The minimum amount to invest in the mutual fund is INR 500.

  • Lumpsum Amount: In this way, the investor chooses to invest the whole amount at a time. The units of the will be given to the investor according to the NAV of that particular day.
  • Systematic Investment Plan (SIP): In this way, the investor invests the money in small amounts. They can invest in monthly, bi-monthly and quarterly ways.

How to Invest in a Mutual Fund?

All you need to know about mutual fund investment involves how you are investing in the mutual fund. The steps mentioned will help you to know more about how it is invested.

  • We need to select a mutual fund. The investors select their mutual fund based on their requirements and needs, risk assessment, decide on the portfolio management style, analyse the expense and assess the fund managers.
  • The next aspect is how to open a mutual fund account. Mutual fund accounts can be opened both online and offline.
  • Create an account from where you can assess the mutual fund shares.
  • Now you should determine how much of the amount you should invest in the mutual fund.
  • After your investment process is completed, you should monitor the progress of your investment. Though the fund managers are there to do all the investment actions, your interference will help you understand the market and investments made in a better way.
  • The final step is when you choose to exit, the you should be prepared to sell it.

Read,

These are the crucial steps that you should know about investment schemes before you invest your money. All you need to know about mutual fund investment takes into consideration these steps.

Pros and Cons of Mutual Fund

As the coin has two sides, so do mutual funds. Knowing about the pros and cons holds an important position when we talk about all you need to know about mutual fund investment.

Pros:

  • Liquidity is the main advantage.
  • Achieve diversification faster and cheaper than buying an individual security.
  • Very low investment requirements.
  • Research and skillful trading which makes the way for professional management.
  • Transparency is maintained wherever possible because it is regulated by SEBI.
  • Provides an opportunity for tax savings under 80C with ELSS investment.

Cons:

  • There is no guarantee on how much of a return will you get. The return is very fluctuating.
  • The fund managers charge a hefty amount.
  • The investor has no control over their investments as the entire thing is controlled by the fund managers.
  • Extra amount is charged from the investors to maintain their operations and pay staff salaries.
  • Diversification in schemes makes your return less.

These are some of the aspects that should be looked at before you invest in mutual funds. These are the overall concepts that all you need to know about mutual fund investment.

Till now the article has given a vivid and broad prospect of all you need to know about mutual fund investment. This includes the history, meaning, types and categories of mutual funds, how to invest and the advantages and disadvantages of mutual funds.

Now let us check out, how mutual funds are creating a job perspective.

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Mutual Fund Job Perspective

As the mutual fund is growing in India too fast, the requirement of mutual fund officers and distributors is much needed. There is a huge scope for mutual fund advisors to grow in this sector.

Mutual fund distributors act as a bridge between the mutual fund investment and the investors. They guide the investors, assess the risk and help them to process their investment.

The advantages of this role are high-income packages, flexible work hours are flexible, they have good professional growth and development, and the ability to gain knowledge and embark on the field of business by getting a good client base.

The candidates appearing for this job must clear NISM series VA certification, must be 18 years old and must have passed 10 and 12 grades with a three-year diploma.

The average salary of a mutual fund advisor as per Glassdoor is INR 2L per year. They also earn additional compensation. Salary is upgraded as per experience.

FAQs

1.      Is investing in mutual funds a good option?

Mutual funds are a good option for those who want to keep their profile low and who prefer a diversified portfolio.

2.      Is it a good option for beginners to invest in mutual funds?

Yes, it is. Many newbies are not aware of the market situation. They are also facing a time crunch to check the prices in share markets. Therefore, mutual funds are a good option for them.

3.      Is there a chance to lose money in a mutual fund?

If the term of investment is long then the possibility is very low.

4.      Is investing in stocks riskier than mutual funds?

Investing in mutual funds is a little less risky.

Conclusion

All you need to know about mutual fund investment is this article. As told earlier, the mutual fund industry is a rising star in India. It is growing enormously and helping people to gain better returns on their investments. Thus, providing a better growth and future for the people.

 

Author:
Passion for writing contents, blogs and novels, has motivated Aritra Bose to pursue her career in content writing from IIM Skills. She is eager to explore her journey as content writer and work with an organization where her communication, creativity, adaptability, research work, SEO knowledge and organization skills are utilized and enhanced. Prior to this, Aritra gained 5+ years of experience in HR and Marketing profile, with KONE Elevators, HPE, GAVA Ecocrete and ICICI Bank. She has completed her MBA in HR and Marketing from KIIT University. Her hobbies are reading, content creating in YouTube, cooking and travelling.

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