Mutual Funds

A mutual fund is an investment vehicle that creates a pool of money created from the investing public that is managed professionally, usually through asset management companies (AMCs).

Mutual funds are a way for investors to use the skills of professional money managers, access diversified asset classes, and generate returns and capital gain. The income (minus expenses) generated from this pooled investment is distributed among investors proportionately by calculating Net Asset Value (NAV). NAV is the market value of all assets under the scheme. Mutual funds in India are regulated by the Association of Mutual Funds in India (AMFI), a division of the Securities and Exchange Board of India.

Several kinds of mutual funds depend on the kind of securities, investment objectives, and the level of returns you seek. Some common mutual funds are equity, debt, and balanced funds, among others.

One can invest in mutual funds online by creating an account with an investment platform, such as 5Paisa. After deciding what scheme you want to invest in, you can choose whether to pay periodic investments or lump-sum. Once you transfer the payment and fill in personal details like bank details and PAN, your account will be more or less ready to use.

Some general benefits of investing in mutual funds are as follows:

• Professional Management: Unlike stocks, mutual funds are managed by professional fund managers who spend time and resources researching to buy assets for the fund.

• Risk reduction via diversification: Diversifying into assets like bonds, equity, and precious metals spreads your risk. You never have to keep your eggs in a single basket.

• Liquidity: One can redeem mutual fund units on any business day.

• Low Cost: Mutual fund investment plans are far less costly than investing in stock, considering the number of securities in which a single mutual fund invests. Moreover, initial investments in almost all funds are affordable.

• A wide range of options to select from: Mutual fund investment allows you to tap into stock, money, and bond opportunities.

• Tax benefits: Mutual fund investments are tax efficient. Plus, investment in ELSS of up to Rs 1.5 Lakhs qualifies for tax rebate under Section 80 of the Income Tax Act.

• Well-regulated: Just like the stock market, investing in both offline and online mutual funds is regulated by SEBI.

• Transparency: Industry regulation keeps both offline and online mutual funds accountable and ensures fairness to investors.

5paisa offers direct mutual fund investment at ZERO commission. You can also save on the expense ratio if you invest in Direct Mutual Funds.

With 5paisa you can open two types of accounts – An All-in-one Account & Mutual Fund Account

Both the accounts have basic KYC document requirements like –

• Pan Card
• Aadhar Card
• Bank details
• Signature (in digital form)

Check the entire list of documents required to open an account with 5paisa

Yes, you have all the rights to stop or cancel your mutual fund SIP at any given point. You can stop SIP using the following steps:

1. Go to MF order book
2. Click on the SIP section
3. Click on the scheme you wish to stop
4. Click on Stop SIP
5. Choose a reason and click on stop SIP

Suppose you withdraw money within a year of making an equity mutual fund investment. You will be taxed 15% on your short-term capital gains, plus surcharge and cess. For debt funds, your returns are added to your income and taxed accordingly.

Short-term means less than 12 months for equity and balanced funds and less than 36 months for debt funds. Balanced funds invest a minimum of 65% of their assets in equities and are taxed as non-tax saving funds.

If you wait for more than 12 months before withdrawing, you don’t have to pay a tax for returns up to Rs 1 lakh. You will be taxed at 10% on your long-term capital gains for more than this amount and lose the benefit of indexation. Indexation allows you to inflate the buying price of your asset using a government-notified inflation factor. This protects investors from the effects of inflation.

Moreover, you can claim tax exemption if you’ve invested a minimum amount of Rs 1.5 Lakh. You can save up to Rs 30,000 if yours is a 20% tax bracket.

For debt funds, if you wait for more than 36 months, you’re taxed at 20% on your returns after indexation.

If you’ve invested in a systematic investment plan (SIP), every investment is a new venture and is taxed accordingly.

Professional money managers manage mutual funds at 5paisa, also called fund managers. These fund managers pool money invested by people for the fund and re-invest your money on your behalf into various asset classes. They make investments based on the scheme’s objectives to give you the promised returns. They decide when to buy a specific security and when to sell it.

Mutual Funds are majorly classified into –

1. Fixed Income OR Debt Mutual Funds
2. Equity Mutual Funds
3. Hybrid Mutual Funds

You don’t have to necessarily open a Demat account to buy Mutual Funds. With 5paisa’s both Apps – Invest App & 5paisa Mobile Trading App you can easily invest in mutual funds. You can download 5paisa Invest App & Open a MF Account. However, on 5paisa Trading App after opening a demat account you can trade in stocks as well as invest in mutual funds.

Currently, the online facility to update nominee details is not available on 5paisa Platforms.

To update the nominee

1. 5paisa’s Download forms section
2. Download nomination form
3. Fill in the details
4. Send it to us at our registered office address

Mutual fund investment clock returns for you in two ways — via capital gains and dividends. Making money via capital gains in the mutual market is similar to the stock market. The difference is that instead of buying a stock, you buy a mutual fund unit comprising multiple securities. As the unit price rises more than the buying price, you can sell the unit and make a profit.

Moreover, If your fund invests in equity, you also enjoy the dividends announced by the companies. You can either cash these returns or reinvest them; experts suggest doing the latter to continue the compounding process.

To choose a mutual fund to invest in, you consider the following factors:

• Investment Goals: What is the purpose of your investment? What returns are you expecting in a particular period?

• Risk: Mutual funds are subject to market fluctuations, more so equity mutual funds. So before choosing a mutual fund, you want to analyse how risky your fund is and if you can manage the risk.

• Liquidity: Do you know when you would require the invested amount and returns for use? Withdrawing the money before a specific period can lead to taxes, so you want to invest accordingly.

• Investment Strategy: What is the strategy your fund house is using to make all the strategic decisions? Does it align with your investment philosophy and goals?

• Fund Performance: Make sure your fund has seen multiple market cycles and given consistent returns throughout.

• Expense Ratio: The expense Ratio is the fee your fund house charges. A mutual fund investment with low fund charges means it impacts your investment less.

• Entry and Exit Load: Entry load is the fee fund house charge from investors. Exit load is the fee charged when you exit the scheme. It is charged only when you exit sooner than expected and aims to discourage quick exits. Look out for fund houses that charge zero or minimal entry and exit loads.

• Taxes: As discussed earlier, depending on when you exit the scheme, you are levied a short-term and long-term capital gains tax. Before investing in a scheme, ensure your fund isn’t taxed heavily.

• Direct Plans: Direct mutual fund plans allow investors to buy units directly from a fund house, as opposed to a regular plan, wherein you pay a broker to do the heavy lifting. If you choose the former, you don’t have to pay a commission of 1–1.25%.