Importance of mutual fund:-
That before today in the last 5-10 years what has been the
performance of the mutual funds, what's the growth and it gives you the number
based on its average growth. Just I gave the example of the ICICI that you will
get a 19.7% return in 5 years, this is an expected return rate calculated by an
expert.
Based on the history of this mutual fund So it's very good
things to calculate the expected returns of the mutual funds. But one thing
keeps in mind friends that this is an expected return, not the guaranteed
return, it still depends on the market since the mutual fund has given such a
performance in the history that doesn't mean that will perform the same way in
the future.
It still depends on the stock market so it will have risk,
especially because it's an equity mutual fund and investment is on the stock
market. So don't just look at the returns rate and invest, if you scroll down
then you will see the pros and cons too.
Pros are that the risk is lower as compared to the benchmark
that means among all the other Large-cap Equity funds, the benchmark of the
risk of this particular fund is less. So this is a good point here that
compared to the other ones this has less risk. Another point is the lower
expense ratio, this has 1.16% Expense ration Friends, which is that percentage
which is the part taken by the asset management company as their profit.
The commission for investing on your behalf. so this is
lower as compared to the others which are again a good comparison. I look at
the more pros then you will see that it's returns are more than the benchmarks
in 1 yr, 3 years, 5 years. In some mutual funds, they give one year 1 return
more than the benchmark and less in 3 or 5 years. that means it's better for
short terms. Look at the pros and cons and decide what is better for the short
term and other things can also be compared.
How mutual fund company works:-
In cons, it says that asset under management, that means
they have a total value of the money this company has invested in different
places has crossed 15000 crores. so it happens that if the value crosses a
particular point then the returns rate gets decreasing slowly. because the
value of the money is so much that taking returns is difficult and this you can
see for yourself.
So let's get back to the different types of equity funds.
The next type is Diversifies equity funds Here the investment is done in the
large, medium, and small-cap or it's done in different companies. The next type
is the Equity Linked Saving scheme that is ELSS, this is a special type of
Equity fund where you can save our tax. You can save the tax on its profit. The
fund manager purposely invests in such places where there's a high return and
also has high risk.
IDFC Tax advantage is an example of ELSS funds with the
expected returns of 11.3% within a year. If you scroll down and click on other
plans and details then you will get the details of tax too. that how much can
you save and much you will have to pay. In this detail you can see for all the
mutual funds if you scroll down and click then you will know the amount of tax
that you will have to pay. The next type is Sector Mutual Funds, here
specifically such companies are invested in which belongs to a big sector like
the Agriculture sector All the companies which are under the agriculture
sector, they are invested on.
A logistics or transport sector, so there. One example of
this is UTI transportation and logistics funds. so the investment is done in that
sector these funds are riskier since all the investment is done in one sector
so if the sector is going down everything depends on that. The last type of
equity fund that I would want to tell you is an Index fund. Index Funds are
passively Managed funds that are no agent of AMC is looking at where to invest
the money here These are passively managed that is according to the market's
rate's up and downs they too go up and down. looking at the price of Sensex and
Nifty it varies.
Now let's look at the second category of mutual funds
friends, which is Debt Mutual Funds. these are those mutual funds that are
invested in the debt instruments. Debts instruments are bonds, debenture,
certificates of deposits now these things are exactly what you can read it for
yourselves. If I keep telling all this then the post will go longer, I will
tell you what are bonds Sometime if the Government needs money and it's not
getting that through the budget then the government borrows money from the
people and take loans from the people. It is called bonds.
Mutual Fund: Expectations vs. Reality:-
You can invest here, give to the government and the
government will return you the money after a fixed interest. Now debt mutual
funds are of various kinds, let's first talk about liquid funds Liquid funds
are those mutual funds which can be easily and quickly converted into cash.
Liquid means that actually, It's not the liquid to drink. In economics, the
liquid is something that can be easily converted into cash. So this thing can be
converted into cash within a day or two. But it has a very low risk, such low
that you can consider this as an alternative to a savings account.
Asset liquid fund is one such example where you will get a
return of 7.1% in a year. Here you can see in the graph how consistent is its
growth so this can show how less is the risk here. for the last 5 years, it's
increasing slowly with this percentage. The next type is Gilt Funds, these are
those funds where Investments are done on the Government issued bonds. So
technically it has zero risks because it's never possible for the Government to
not return your money. Mostly the interest rate can fluctuate.
The next type is Fixed Maturity plans and this can be
considered as an alternative to Fixed deposits, FD friends. because it has very
low risk just like FD and it is done for a fixed time. For a specific time
investment is done here and you can't take the money before that. So these are
the few main types of Debt funds there are more like the Junk Bond scheme.
The Next Big Thing in Mutual Fund:-
The third category of mutual funds is Hybrid Mutual Funds
friends, basically its a mixture of debt and equity mutual funds. Some people
want to invest in the stock market but don't want to invest all the money there
and also invest some amount in the Debt instruments. so hybrid mutual funds are
for them If most of the money is invested in a Debt fund then it will be called
as the Balanced savings Funds Approximately the ratio is 70:30 that means 70%
of your money is at the low-risk debt funds and 30% is in the equity funds and
if it's the other way, 70% is in the equity funds at the higher risk, then it
is called as a balanced advantage fund.
Hybrid mutual funds to have different types like arbitrage
funds but friends I feel I have given a lot of information and knowledge to you
Now I leave it to you, go ahead and research yourself on further kinds of
mutual funds and which one is better for you. The biggest advantage of mutual
funds in comparison to other investments is that it is already diversified.
Your risk gets very low due to diversification. because you are not investing
in one place so if one thing crashes so it won't affect your money.
So in comparison to the stock market, gold, real estate,
mutual funds are less risky however the exact risk depends on the mutual fund
that you are investing on. One more good advantage is that it is affordable,
you don't have to invest a big amount altogether You can use SIP and invest a
small amount every month. and all the investment of the mutual funds.
Friends are done by a professional expert or a fund manager
who decided where to invest and where to not. This you don't need to so it's
again a big advantage that an expert is working for you. But friends this
mutual funds has a disadvantage too. If you are giving it to an unknown person,
you don't know how it's going to perform. however, he is an expert but you
can't trust 100% that an expert will be right all the time. But the biggest
disadvantage that used to be for the mutual funds earlier is that the agents
used to take a lot of commissions for investing in the mutual funds. They say
that gives us the money we will invest for you in the mutual funds and deduct a
lot of commissions for themselves.
After this, you can easily understand the difference between
a mutual fund and investment in the share market.
THANK YOU.
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