Six basics to know before you start investing in mutual funds

For a good financial future, it’s important to invest your money. Mutual funds are one of the most popular options for getting a good return on your investment. Nowadays, many people want to invest in a mutual fund; they have used the online SIP calculator but are not aware of the process of investment. Some people don’t know how to select the right mutual fund for themselves, and few don’t know the process of investment. So, before you start to invest in mutual funds, here are a few things that you should know about them.

What are mutual funds?

Mutual funds are the instrument where investment is made in stocks or bonds, which are managed by professionals of an AMC (Asset Management Company). Investors put their money in a variety of fund units on the basis of their risk appetite and the time frame of the investment. Mutual funds are a tax-efficient way of making your savings grow. Using a mutual fund calculator or mutual fund return calculator, you can identify how much you need to invest in building the desired corpus.

For people who lack knowledge of the stock market, investing directly in equity may be dangerous. In that case, investing in a mutual fund is a great idea. Use a mutual fund SIP calculator or SIP return calculator available online to get a fair idea of the amount needed to be invested.

Different types of mutual funds:

There are many types of mutual funds based on different parameters:

  1. On the basis of the investment goal

The mutual fund schemes are classified in:

  1. Equity mutual fund – Money gathered is invested in the stock market in this scheme. The risk is high in the equity section, and the investors are advised to invest as per their risk appetite. According to the market capitalization, SEBI has mentioned three categories:
  2. Large Cap – It includes the top 100 companies in terms of market capitalization
  3. Mid Cap – It includes companies from 101 to 250th
  4. Small-Cap – Companies with a position above 251 are under Small Cap.
  5. Debt mutual fund – These mutual funds mostly invest in debt instruments like government bonds, corporate bonds, etc. This is ideal for investors who don’t like to take much risk.
  6. Hybrid mutual fund – These mutual funds invest money in both debt and equity instruments. These mutual funds offer the perfect balance of returns and risk and are one of the most popular mutual funds among investors.

How are returns gained in Mutual funds taxed?

The gains from the mutual funds are also considered income and are taxed. However, the taxation varies as per the holding duration and the type of the mutual fund. Capital gain can be either short term or long-term, depending on the holding time of the fund.

Tax saving mutual funds

The equity-linked saving scheme is a type of mutual fund which is created by the government to encourage long-term equity investment. A fund manager of ELSS invests the money in a diversified portfolio, mainly in equity and related segments that hold high risk but also have the potential to deliver high returns. ELSS offers tax benefits under the 80C Income tax act. According to this, one can get tax exemptions up to 150000 by opting for ELSS funds.

Investing in mutual funds online is a simple procedure. You can choose the fund you want and watch your corpus grow!

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