Mutual Fund: Interesting Facts about Mutual Funds that You Must Know Before Investing

It is high time that you move over from public Provident funds, fixed deposits and gold and other safe investment options. The market is here hitting new highs and financial gurus are predicting more than satisfying returns from investment. This must be enough to get you out of the safe investment board and develop an appetite for some risk besides an interest in mutual funds and equities as a great investment option. You need to check the best mutual funds to buy.

Basics about online mutual fund

Mutual funds are generally operated under a 3 tier structure in our country and the 3 tier structure is formed by a sponsor asset management company and a trust. A sponsor is generally the person responsible for the operations of the mutual fund and they stand on the duties and responsibilities given by the trust. The law of the Indian trusts act governs the trust and the money of investors is held under this trust.

Types of investments

Investors can go for 2 variants of investment type when it comes to mutual fund investing that is actively managed funds and passively managed funds.

The actively managed funds generate better returns for the investors by trying to beat the index benchmark of nifty and Sensex but higher returns also bring the additional cost of research.

The passively managed funds have the only aim of replicating the returns of the index benchmark to any extent possible but these funds never make an attempt to create new benchmark return records.

Value of the mutual fund

The value of a mutual fund is generally decided by the net asset value and in a mutual fund it is determined for each unit number and this is the total of the fund which is calculated by taking into the account value of all the investments made by the fund minus all the expenses.

Debt or equity

You must know that returns on the mutual funds attract tax and based on the same mutual funds are divided into product classification of debt or equity. Fund equity investing at least 65% of the portfolio in equity and equity-related assets are known as equity funds while investment less than 65% is known as debt mutual fund.

Tax benefits for the best mutual funds to invest in for long term

An equity fund is based on tax so you must know about the tax rules applicable to these funds. These are subject to capital gains and also enjoy other tax benefits. It means that there are no long term capital gains is not applicable to the investor on the equity fund if he remains invested in the fund for more than one year and a lower short term capital gain of around 15% is charged if the investor sells the equity mutual fund within one-year full stock dividend distribution tax is not applicable to the equity mutual funds so investors can be stress-free.

For debt funds short term capital gain is levied for selling the debt fund within a period of 3 years but the taxes divided marginal income tax rate. If Investors sell their shares in the fund post maturity of 3 years the tax rate for the long term capital gain is charged around 20% with indexation.

Wealth tax is not calculated on mutual funds and therefore there is no classification of wealth here.

If investors are considering to go for mutual funds sip investment, then they must know that a systematic investment plan is often mistaken for a refund but ideally it is a monthly plan that allows the investor to invest regularly at instalments in a selected mutual fund. On the flipside, they can also go for a systematic transfer plan they can withdraw money in instalments.

Investment rules

It is important to understand that the entire amount invested in any fund is never invested in assets as each mutual fund has mandate decided by the fund manager. Hence some of the money invested must be diverted to buy assets which can be retained in liquid or cash so as to provide for redemption patrols besides meeting the short term expenses for the best mutual funds to invest in India.

Lack of good investment opportunities might also result in funds holding the money in hand so investors must consider investing in mutual funds and also learn about different types of mutual funds.