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Mutual fund investment is a popular investment avenue among small investors. Mutual fund companies collect investors' money and invest it in various securities. Since each mutual fund is managed by professional experts or fund managers, investing in mutual funds is comparatively safer than investing directly in stocks. If you are a beginner or first-time investor, then mutual funds are undoubtedly the best alternative to start your journey in the stock market. Let us talk more about how mutual funds work, how much money you need to invest, why you should invest in mutual funds, and how you can invest in mutual funds in India.
A mutual fund is a type of investment that collects money from individual and institutional investors and invests it in various financial securities such as stocks, bonds, debt instruments, money market instruments, etc. In India, there are different types of mutual funds such as equity mutual funds, hybrid mutual funds, and debt-oriented mutual funds.
Each mutual fund is managed by a fund manager who strategically invests the money collected to achieve maximum returns. Fund managers are professional experts who have good market knowledge and manage the portfolio of mutual funds. Each mutual fund has an expense ratio, which is the fee charged to the fund manager and other operating costs for managing the fund's assets.
If you want to invest in mutual funds, you can either start a SIP with as little as Rs. 500 or you can also invest a lump sum amount at once. Small retail investors who do not have a large amount of money can even invest in mutual funds by using SIP. You have the option to start SIP monthly or quarterly.
There are plenty of reasons on why to choose mutual funds investment over other investment avenues;
Investments in mutual funds can be made either directly through the asset management company or through a stock broker that offers mutual fund products to its clients.
Start your paperless investment journey in mutual funds immediately without any hassles. Check out these simple steps to invest in mutual funds;
Every mutual fund, whether equity, bond, or hybrid, has two plans - direct and regular. Direct plans can only be purchased through the fund company, as there is no intermediary for direct plans. In contrast, regular plans can be purchased through an intermediary such as a broker or distributor.
Today, some leading stockbrokers offer direct plans on their mutual fund platforms. Zerodha, Upstox, 5paisa, Groww, etc are some of the most popular names in this list. You can also switch from regular plans to direct plans.
As discussed above, opening a demat account is the first step of mutual fund investment with your broker. Hundreds of broker today accepts investment in mutual funds from clients but the question is which one is the best broker for investment?
As direct plans have less expense ratio, therefore, it is better to invest in direct schemes to get more returns. Open a mutual fund account with a top broker who offers direct plans and avail free mutual fund investment at zero subscription fee or brokerage charges.
Top 10 best brokers for mutual fund investment
Among thousands of mutual fund schemes available, which one to select for investment is a big question? Top performing MF is not the best for every kind of investors as investment in mutual funds is not risk-free and one needs to take extra care while selecting the right fund.
Here are the simple steps one should follow to select the right mutual fund plan;
Now you may have a question: are mutual funds taxable or not? If so, what is the tax rate levied on income from investments in mutual funds?
With the exception of tax-advantaged ELSS funds, all other investment funds are taxable, and the returns earned are taxed by investors according to the applicable tax rate.
Different tax rates are applied depending on the type of mutual fund you have invested in. Find out how mutual funds are taxed;
There are also dividend mutual funds where investors receive regular dividend income. The dividend amount is tax-free for the investor, as the distributing company has to pay dividend distribution tax (DDT) at 10%.
Mutual fund Type | Short-term capital gain tax | Long-term capital gain tax |
---|---|---|
Equity Mutual Funds | If you have sold your investment within 1 year, then you have to pay 15% short-term capital gain tax. | If you sell equity mutual funds after a year and receive gain of upto Rs 1 lakh then the entire long-term capital gain upto Rs 1 lakh will be tax-free. However, profit above the threshold limit of Rs 1 lakh will be taxed at 10%. |
Debt Mutual Funds | If you sold debt mutual fund units before 3 years, the returns will be taxed as per the applicable tax slab of investors' income. | Profits on sell of debt mutual fund units after 3 years are called long-term capital gain. The returns derived will be taxed at 20% with indexation |
Check out the golden benefits of mutual funds investment, described below;
If you are a beginner or first-time investor looking to start your journey in the stock market, you can take a step forward by starting a SIP in mutual funds. Not only is it a convenient way to invest in mutual funds, but it is also less risky as each mutual fund invests in multiple stocks and is managed by experts, which helps in good risk management.
Before investing in a fund, you must first decide what your investment objective is and review your risk profile to choose the right fund for your investment. Do not be disappointed by short-term losses and stay invested for the long term to get good returns.
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