Mutual Funds

The Mutual Funds have been into existence for more than two decades now. Only a decade ago, however, until the US Economic crackdown happened in 2008, India was not one of those countries that speculated the impact of such economic crisis. With millions on stake on the shares, Nifty and other instruments, the overnight crackdown simply ruined the portfolio of thousands of investors. 

Though MFs have always been contested as a safer investment option, the importance of choosing MFs as a complete portfolio solution was only understood after the 2008 crisis. Fast forward eight years to 2016 and India was posed with another economic challenge - The demonetization in Nov 2016. This was good or bad for many Indian investors based on which side of the line they stood- cashless or cash cows. Nevertheless, it completely redesigned the scenario of the financial landscape for many Indian investors, for the good! 

Why Mutual Funds? 

Much has been written about the Mutual Funds already all over the web, so I will keep it simple here. The Mutual Funds gives you the opportunity to start with small piece of investments and then grow them exponentially over time. Exponentially, because, you not only grow on the principal invested, but also, the dividends dividends grow over time. The powerful capability of MFs to adjust itself 

Today, the Government has brought in many opportunities for the investors who are willing to invest in MFs and it is definitely not the time to sit idle and not capitalize upon it. 8 years ago, only the instruments on tax saving Mutual Funds would earn rebate; however, with the new trends, even the Equity Funds have been made tax free after an investment of 1 year. With right mix of Mutual fund Portfolio, you can create a continuous long term, sustainable  and rewarding portfolio for yourself. 

What is your Starting Point? 

The best time to plant the tree was last year! The next best time is today! So goes the saying. There is no doubt that the earlier you develop an investment habit, the better it will come up in long term. The key however, is consistency. 

While you intrigue yourself with the overwhelming range of investment options today, and so many choices can always lead you into analysis paralysis, the best way to start off is by looking at your age vs risk profile.  Here's a small tool to help you out to decide a starting point for yourself. 

Age Vs Risk Profile Tool for MF Investments

Sr. No	Age Group (Years)	Investment % in different type of Funds
		Equity	Tax Savings	Debt
1	24- 26	70	20	10
2	27-30	65	25	10
3	31-35	60	25	15
4	35-40	60	20	20
5	40-45	55	25	20
6	45-50	50	25	25
7	55-60	40	30	30

Also Recommended: 10 Things to Consider while creating a Mutual Fund Portfolio

This table is not the rigid and sacrosanct one to follow and you can use a deviation from this if you are comfortable with taking risks and depends completely upon the risk taking capability of every individual. This gives you a fair idea of how to create an investment triangle for yourself. 

The Equity and Debt Funds are complementary to each other and support each other in the portfolio. If the market is performing well, the Equity Funds rise, indicating good performance, whereas the debt funds perform average due to less lending. When the market is down, the lending increases and the Debt Funds show better performance, while the Equity tends to dip. 

How Much Can You Earn? 

Unlike shares which is a direct return of changes over the market conditions, and usually depend upon the performance of just one company, the Mutual Funds compound the performances of several companies into one, offsetting the shortfalls of poor performing ones with that of the good performers. Thus, the NAV is not affected drastically over time. 

Secondly, the Mutual Funds have a powerful capability of Reinvesting and Compounding which gives an exponential rise to your portfolio over time due to the reinvested dividends. Thus, the potential to safely earn good returns with Mutual Funds is quite high. There are 3 factors that mainly influence  the performance of the mutual funds. 

1. Invested Amount

2. NAV (Net Asset Value) 

3. Dividend Per Unit (Declared Annually/Quarterly/Half Yearly) 

The third parameter helps to pay you out based on the performance of the fund and period and depending upon the options chosen, you can add value to your MFs. For example, if you have chosen a Dividend Payout Option, the Dividend is paid out to your bank account after every declared period. However, if you have chosen the option of Dividend Reinvestment, the same dividend is reinvested to buy additional funds and added to your portfolio. If continued for 5 years, the second option can grow your funds to an average of 25%- 40%*, depending upon the Fund Performances. So, the potential to earn is definitely high. 

Also Recommended: 10 Factors to Know While Selecting a Mutual Fund

Types of MFs 

The Mutual Funds are essentially divided in to two types of funds - Direct Funds and Regular Funds. While the first one can be directly purchased without any Distributor or ARN code, the Regular Funds are often routed through a Mutual Fund Broker who recommends funds to his clientele based on his experiences and research. 

The Direct Funds allow you to transact directly with CAMS - Computer Age Management System which serves 60% of the MF industry across 15 Mutual Funds. CAMS is a good way to purchase the funds directly without any involvement of brokerage and most of the returns are directly available to you. To open an account on CAMs Online click here. 

The Regular Funds involve the third party DEMAT account brokers who receive a percentage on the returns apart from brokerage for purchasing and selling the funds. While it is good idea to use such services, relying your complete portfolio in the hands of someone else is seldom a wise idea. 

All Mutual Funds listed on the stock market are essentially distributed over these two heads under which you can find the Equity, Tax Saving, NIFTY and Debt Funds listed under both the heads.