Mutual Funds

Investing in Mutual fund can be an affordable and convenient way to build wealth over time. Mutual funds pool money collected from multiple investors and put it into a diversified basket of securities – such as stocks or bonds. They are managed by a fund manager, a financial expert who makes the investments and monitors them on behalf of the investors. This professional management and the diversification across multiple securities help mitigate risk and make investing accessible even to those who are not well-versed in the financial market.

What are mutual funds?

Mutual funds are a pooled investment vehicle, where money collected from multiple investors is combined and invested in a diverse basket of securities. This could include stocks, bonds, commodities, or other investment avenues.

Mutual fund investments are handled by a fund manager, a financial expert who is tasked with executing the scheme’s investment strategy. This includes designing the portfolio (the basket of securities that the scheme invests in), overseeing it, and making changes to it when necessary to potentially achieve the scheme’s investment goals.

Types of mutual funds based on asset class

Mutual funds can be broadly classified into three types based on the asset classes they invest in. These are – equity, debt and hybrid funds. Let’s take a closer look at each to understand the differences better.

1. Equity Mutual Funds: These mutual funds primarily invest in shares of companies listed on the stock market. They aim for long-term gains and are suitable for investors with a higher-risk appetite. Some of the funds under this category are Large Cap, Large and Mid Cap, Mid Cap, Small Cap and sectoral funds.
2. Debt Mutual Funds: These mutual funds invest primarily in fixed-income instruments like government securities, sectoral bonds, treasury bills and money market instruments. They are comparatively lower-risk and are considered suitable for conservative investors seeking the potential for relatively stable returns over a shorter period.
3. Hybrid Mutual Funds: As the name suggests, these funds invest across equity and debt mutual funds. In doing so, they aim to combine the long-term growth potential of equity funds with the relative stability of debt mutual funds. These are suitable for investors who seek a balanced approach to mutual fund investing with lower risk than pure equity funds and higher potential returns than debt funds.

How do mutual funds work?

A mutual fund scheme is run by an asset management company or AMC and managed by the fund manager. Investors’ money is pooled together and invested in a diversified portfolio of securities. The portfolio composition depends on the scheme type (equity, debt, hybrid, etc), the investment objective, and the fund manager’s discretion.

Investors buy units in the mutual fund, representing partial ownership of the portfolio’s securities. The value of these units fluctuates based on the performance of the underlying assets.

For example, the value of an equity mutual fund’s portfolio will depend on the value of the stocks that it invests in.

The per-unit value of a mutual fund scheme is known as the Net Asset Value, which is calculated by dividing the value of the scheme’s underlying securities, minus its liabilities, by the total number of outstanding units. The NAV is calculated at the end of each trading day based on the closing market prices of the fund’s holdings.

Advantages of mutual funds

Investing in mutual funds is easy, convenient, and affordable. Here are some key advantages:

Diversification: Mutual funds investments are spread across a wide variety of assets, reducing the risk associated with any single investment.

Professional management: Experienced fund managers make investment decisions, aiming to achieve the fund’s objectives.

Liquidity: In open ended schemes, investors can easily buy or sell mutual fund units at the current NAV. Experienced fund managers make investment decisions, aiming to achieve the fund’s objectives.

Accessibility: Mutual funds provide access to a broad range of investments, even for those with limited capital.

Convenience: Investing in mutual funds is straightforward, with minimal administrative tasks for individual investors.

Ways to invest in mutual funds

There are two common routes for mutual funds investments: Systematic Investment Plan or SIP and lumpsum.

Lumpsum: This mode involves investing a sizeable amount in one go into the scheme of your choice. It is a one-time investment.

SIP: This involves investing a fixed amount in regular instalments – weekly, monthly, quarterly, etc. It encourages investing discipline. It is also affordable, as SIP options start from Rs 100 or Rs 500 in several schemes.

How to invest with Bajaj Finserv Asset Management Ltd

First, select a Bajaj Finserv AMC mutual fund scheme. You can choose from among debt, equity and hybrid mutual funds and exchange traded funds (ETFs). You can invest in these mutual funds online or offline through Bajaj Finserv AMC. Once you’ve chosen a fund, you can invest through the following steps:

1. Click on ‘Invest Now’ on the scheme page or the website home page. You will be redirected to the investor portal.

2. If you are an existing investor with Bajaj Finserv AMC, you can log in. New investors can sign up. To sign up, you will be asked to enter some basic information such as your name, date of birth, PAN details and bank account information. You may also be asked to complete your Know Your Customer (KYC) verification process if you are not KYC validated.

3. From the dropdown menu, select the scheme you wish to invest in and the mode of investment (lumpsum or SIP). Enter the investment amount and select the payment method.

You can also invest online as well as offline through financial advisors, distributors and on aggregator platforms.

What fees and costs are associated with mutual funds?

Here are some of the fees involved in mutual fund investing:

Expense Ratio: The expense ratio is the primary cost involved in mutual fund investing. Expressed as a percentage of the fund’s assets under management (AUM), it is deducted daily from the fund’s Net Asset Value (NAV). This fee covers fund management charges, administrative expenses, and operational costs, among others. A higher expense ratio reduces the net returns delivered to investors.

Exit Load: An exit load is a fee charged by some funds when you redeem your investment before a specific time frame. This is set in place to discourage early withdrawals and help fund houses manage liquidity.

Transaction Fees: Some distributors may opt to charge a small transaction fee for investments (SIP or lumpsum) that exceed Rs. 10,000. The amount is deducted by the fund house on behalf of the distributor.

No matter what your choice of fund, it is essential to review the costs involved before investing. Considering these costs can help visualize how your returns could be impacted in the long run. All charges are disclosed in a fund’s Scheme Information Document.

Plan your investment

If you’re not sure of where to invest and what amount to start with, there are several convenient and easy-to-use tools that can simplify the planning process. For example, Bajaj Finserv AMC has a free online SIP Calculator, SIP Top-Up Calculator, Lumpsum Calculator If you’re not sure of where to invest and what amount to start with, there are several convenient and easy-to-use tools that can simplify the planning process. For example, Bajaj Finserv AMC has a free online SIP Calculator, SIP Top-Up Calculator, Lumpsum Calculator and Compounding Calculator. Depending on your mode of investment (lumpsum or SIP), you can choose the tool that is suitable.

All you need to do is enter your investment amount, duration, and expected rate of return. The calculator instantly shows you the potential total corpus. You can determine the expected rate of return based on the historical performance of the mutual fund scheme or category you are looking to invest in. Do note, however, that past performance may or may not be sustained in the future.

You can also use the calculators to determine what scheme to invest in, or what instalment or investment amount to choose, based on what you want your final corpus to potentially be.