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Instruments that promise you market linked returns

Introduction to Mutual Funds investment

Instruments that promise you market linked returns

Introduction to Mutual Funds investment

Mutual funds to help achieve a balanced portfolio in a single investment

An introduction to mutual funds investment

Mutual funds are instruments that promise you market-linked returns. Many investors choose to invest in a variety of securities so as to diversify their portfolio. It is for this reason that mutual funds are an effective option as they help an investor achieve a balanced portfolio in a single investment.

Mutual Funds: The Basic Concept

Mutual funds are the distribution of funds made by several investors in a variety of securities with an objective to gain superior returns. This is done with the help of a skilled fund manager. The function of the fund manager is to aggregate the investments made by many small and big investors.  Once these funds are pooled in, they are distributed appropriately by the fund manager to various financial securities that have a potential of generating high returns. These returns would then be distributed among the investors by the fund manager, resulting in a profit.

Simply put, here are the 4 simple steps involved when an investor invests in mutual funds:

  1. Several investors pool in their money
  2. A fund manager invests this pooled money in various securities like stocks, bonds, money market instruments, etc.
  3. These securities generate returns (although, there are chances of a downside as well)

These returns are then distributed to the investors (primarily in the form of an eventual increase in net asset value of the mutual fund scheme)

Types of Mutual Funds

Mutual funds are a good investment avenue owing to their vast investment horizon. There are several types of mutual funds based on an investor’s need and appetite for risk. Some of the many types of mutual funds include:

  1. Money Market Funds
    Money Market Mutual Fund  is a mutual fund that invests in highly liquid and safe money market instruments so as to achieve a short-term income in cash or any cash equivalent. Fund managers collect the pool of funds invested by the investors and invest them in money market instruments such as Treasury Bills (T-Bills), Repurchase Agreements (Repos), Commercial Papers, and Certificate of Deposits (CODs). This investment is ideal for investors with a short-term investment horizon who aim to get low but safe returns that are highly liquid, within a short span of time that varies from a few days to a couple of months.
  2. Income (Debt) Funds
    Income Funds are funds that invest in government and high-quality corporate debt that hold bonds which can be reaped by an investor at regular intervals (monthly, quarterly, half-yearly or yearly). This investment is ideal for investors who are risk-averse and have a long-term investment horizon who aim to get a low but steady income. This investment is not ideal for investors who are tax-conscious as regular income is taxable.
  3. Equity Funds
    Equity Funds are a popular type of mutual funds that invest primarily in stocks. A fund manager aggregates the pool of funds invested by the investors in a variety of stocks that could be solely on those with large market capitalisation or a mixture of small and medium market capitalisation. This investment is ideal for budding investors who wish to expose themselves to the stock market with an aim to gain steady returns over a long period (say, at least 5 years).Click here to apply for Mutual Funds
  4. Balanced Funds
    Balanced Funds invest in stocks and government bonds so as to achieve a regular income. The concept behind balanced funds lies in the inversely proportional relationship between stocks and bonds – stocks can give good returns but carry higher risk while bonds give lower returns while carrying lower risk – a hybrid of these two hence generates returns while limiting the downside. This is ideal for investors that have a long-term investment horizon who aim to gain steady returns with low financial risk owing to the ‘balanced’ distribution of funds.
  5. Tax-Saving Funds
    Tax-saving funds, as the name suggests, are funds that allow an investor to save on taxes on your current income as per section 80C of the Income Tax Act that allow a tax rebate of up to INR 1,50,000 on the amount invested. Equity Linked Savings Scheme (ELSS) are the only ones currently that offer tax exemption on the invested amount. These funds invest primarily in the equity market and have a lock-in period of three years. These funds are ideal for investors who wish to get tax deductions on their current income while also seeking wealth creation.

Benefits Of Investing In Mutual Funds

  1. Simple And Easy To Understand
    Mutual fund investments involve a very simple and hassle-free investment procedure. The concept is relatively easier to understand compared to other investment options. This makes it a popular investment choice for individuals with no significant financial prowess.
  2. Invest in Small Amounts through SIPs
    One of the greatest benefits of mutual fund investments is that one can start with a relatively small amount. There is no upper or lower investment limit. If you are a novice then this would be ideal for you as you might want to start with a small investment through systematic investment plans. As you gain investment skills, you can increase the amounts.

  3. Wide Application and Usage
    Simplicity is not the only benefit of mutual funds. This form of investment is also versatile as it is used by both—experts as well as beginners. Investors will be able to get short-term or long-term savings, automatic credit, systematic withdrawal, dividends out of mutual fund investments.Thus, investing in mutual funds can prove to be a safe option for any investor who wants to start small with an aim to earn attractive returns. Mutual fund investments are also convenient as they can now be done online.

    To know more about investing in Mutual Funds with Standard Chartered, click here.

Disclaimer

This document is for information and educational purposes only. It is meant only for use as a reference tool. It has not been prepared for any particular person or class of persons. The products and services may not be suitable for everyone and should not be used as a basis for making investment decisions. This document does not constitute investment advice nor is it an offer, solicitation or invitation to transact in any investment or insurance product. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment. Prior to transacting, you should obtain independent financial advice. In the event that you choose not to seek independent professional advice, you should consider whether the product is suitable for you. You should refer to the relevant offering documents for detailed information. Standard Chartered Bank does not provide any investment advisory services under the wealth proposition. Standard Chartered Bank in its capacity of a distributor of mutual funds or while referring any other third party financial products may offer advice which is incidental to its activity of distribution/referral.

Mutual Fund Investments are subject to market risk. Read scheme related documents carefully prior to investing. Past performance is not indicative of future returns.

Tax laws are subject to amendments from time to time. The user/investor needs to verify all the facts and circumstances with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.