Understanding Mutual Fund Investments Through FAQs

Different investment avenues are available to investors. Mutual Funds also offer good investment opportunities. Like all investments, these also carry certain risks. Compare the risks and expected returns after tax adjustment on various instruments while taking investment decisions. You can seek advice from experts while investing in a Mutual Fund.

To make you aware of the functioning, a list of questions will help you understand what they are and how they work.

What are Mutual Funds?

A Mutual Fund Investment is a mechanism for pooling money by issuing units to investors and investing funds in securities according to the objectives disclosed in the offer document. They spread across various industries and sectors, diversifying the risk because all stocks do not simultaneously move in the same direction. They should be registered and regulated by the Securities and Exchange Board of India before collecting funds from the public.

What is SEBI’s role?

The SEBI Act was passed in 1992 by the Indian Government to protect the investor interest, promote the development of, and regulate the securities market. Every Mutual Fund, whether promoted by the public or private sector entities, are governed by the same regulations and body.

What is the Net Asset Value?

The Net Asset Value denotes the performance of a particular scheme. It is the market value of securities of a scheme divided by the total number of scheme units on any specific date.

How to save on tax?

Certain Mutual Funds like the Equity Linked Saving Scheme or ELSS allow you to claim benefits from your taxable income if you invest in specific securities. They offer tax benefits of up to Rs. 1.5 lakh based on Section 80C of the Income Tax Act with three years mandatory lock-in period. The longer you retain your investment, the higher your chances of making money.

How to invest in Mutual Funds?

You could contact the agents of a Mutual Fund spread all over the country for necessary information and application forms. Ensure you invest through registered distributors of the Association of Mutual Funds in India. They should have a valid AMFI Registration Number. You can also invest using the fund house’s website or app.

What are other tax-saving schemes?

Besides Tax-Saving Mutual Funds, you can also invest in pension schemes launched by the Government. They are growth oriented and invest pre-dominantly in Equities. Their growth opportunities and associated risks are like any Equity-oriented scheme.

What are the investment modes?

You can invest in a lump sum or through the Systematic Investment Plan. SIP allows you to invest regularly by putting a small amount of money in the fund and taking part in the stock market without guessing its movements. No matter the market situation, you save yourself from the risk of losing a large amount of money.