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Mutual Funds

Mutual Funds

The mutual fund is a professionally managed entity at https://infinitumwealth.in/ that pools the savings of a large number of investors (known as unit holders) and invests the funds in a variety of securities like stocks, bonds, government securities and other money market instruments. The fund house issues units (against the funds received) to each investor. Mutual funds are managed by the fund managers at Infinitum Wealth, who try to achieve substantial income and capital gains for the investors.

Mutual funds are one of the best investments available to retail consumers as they are cost-effective and easy to understand and invest in. MFs don’t need huge capital, managed by the fund managers and allowing the unitholder to enjoy the benefits of diversification.

There is a wide range of products people invest in. To cater that Mutual fund houses have developed many schemes according to different needs and requirements, such as Equity, Liquid, Debt and ETF Gold schemes.

Equity schemes are further classified into the Large cap, Midcap, Small cap, Microcap, Balanced, Thematic, Arbitrage and Fund of Funds

Debt schemes are classified into Gilt funds, MIPs, Hybrid funds, and Income funds. A customer is free to decide which scheme he wishes to invest in depending on his financial goal, time horizon, and risk appetite.

Liquidity mutual funds are Open-ended schemes and can be redeemed partially or fully at any time at the current price (NAV) of the units. They are more liquid than other forms of investment such as real estate or bonds. The redemption procedure is easy, standardized, time-bound and hence a customer gets his money within the specified time frame.

If an investor remains invested in an equity scheme for more than 12 months, the capital gains are tax-free. In addition, an investor can avail of tax benefits under Section 80C if he invests in ELSS (Equity Linked Saving Schemes) for three years.

Regulations: All mutual funds are registered as well as monitored by SEBI at Infinitum Wealth. They must follow all the rules and regulations laid down by SEBI.

Types of Mutual Funds

Equity Funds: These mutual funds invest in shares of companies. They are high risk-return funds as their profits are linked to the stock market. The dividends earned can either be plowed back into the fund by the fund manager or distributed to investors in the form of the dividend. They are ideally suited for investors who have a long-term perspective and can stay invested for at least five years. There are various types of equity funds such as Large Cap/Diversified, Flexi Cap, Mid Cap, Small/Micro Cap, Arbitrage, Thematic, and Balanced.

Debt/Income Funds: These funds invest mainly in securities such as corporate bonds, government securities, debentures, commercial papers and other money market instruments. Their main aim is to provide regular income and is ideal for medium to long-term investors who have a low-risk appetite and would like to earn regular income. Capital appreciation is significantly lower as compared to equity funds. Debt funds are less risky as compared to equity funds.

Liquid Funds: These funds invest in highly liquid instruments and are a suitable alternative to bank deposits as they provide liquidity, better interest rates compared to banks and capital preservation. They are ideal for institutional investors, corporates and HNIs who want to invest for a short period (even as short as a day). Returns will be significantly lower as compared to equity funds as the fund manager invests funds in liquid assets like T Bills, Commercial Papers, GILTS, and CDs.

Systematic investment plan (SIP), systematic transfer plan (STP) and systematic withdrawal plan (SWP) are methods of organized investing and withdrawal. They serve various purposes, as discussed below

Systematic investment plan (SIP)

In a SIP, one invests small amounts of money over time to build a corpus. By distributing out investments over a period of time, helping investors average their purchase cost. This stops the client from committing all your money at a market peak and also maximizes returns. SIPs aids in bringing discipline to investing and making investing a habit.

The rate of SIPs can vary; you can do a monthly, weekly or daily SIP. Also, there are various kinds of SIPs. To exemplify, a value SIP changes your SIP amount according to the expensiveness of the market. However this option sounds good, tinkering with some idea of SIPs only makes it complex. One should stick to an ordinary SIP, preferably on a monthly basis. They are not as volatile or risky as equity schemes making them of limited use in debt scheme.

Systematic transfer plan (STP)

Generally, investors start an STP when there is a huge amount to invest. It helps in spreading investments over a period of time to normalize the purchase cost and lessen the risk of getting into the market at its peak. With an STP, an investor can invest a huge amount in one scheme (mostly a debt scheme) and transfer a fixed amount regularly to another scheme (mostly an equity scheme).

The basic idea behind an STP is to earn more money on the lump sum while it is being arranged in equity.

Depending on the lump-sum amount, the investor can decide the period of deploying the money in the market.

An STP can be done from an equity fund and a debt fund as well. If you are saving for something like a child’s education, a home or a property and are nearing your goal, don’t wait till the target date. Start moving your money from equity to debt before you need the money.

Systematic withdrawal plan (SWP)

An SWP allows withdrawing a chosen sum of money from a fund at regular intervals. It is most suitable to retired people, looking for a fixed flow of income. It also provides the investor a good level of protection from market uncertainty in the need of the hour.