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Mutual Funds are a smart way to grow your money. They can help you achieve your financial goals as they have the potential to generate higher-than-inflation returns.
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What are Mutual Funds?
It is an investment vehicle where multiple investors come together and pool their funds. This pooled money is then invested by the fund manager across various asset classes including equity, debt, gold, and other securities to generate returns. The gains and losses incurred from such investments are divided among investors in the proportion of the share of investment.
To learn more about them, read our detailed guide on What are mutual funds.
Advantages of Mutual Funds
Professionally Managed
One of the key benefits of investing in these funds is that your money is managed by professional money managers who have years of investing experience.
Liquidity
It is the ease of buying and selling an investment. Mutual Funds offer superior liquidity compared to some of the other instruments as you can buy and sell them anytime you want.
Returns
Like any investment product, the performance of these funds are measured in terms of the kind of returns they deliver. Historically, mutual fund returns have been higher than the returns delivered by other traditional investment options like Bank FDs, RDs, PPF, etc.
Affordability
You can start your investments in these funds with as low as ₹ 500. Therefore, you don't need large sums to start investing.
Diversification
As mutual funds invest in a basket of stocks, bonds, etc., you can own a diversified portfolio even with a small investment amount, this helps reduce risk as well.
Well Regulated
Mutual fund schemes are regulated by the SEBI. The tight regulations ensure transparent processes and protect the investors' interests.
Ways to Invest in Mutual Funds
Amount you want to invest
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Note: This calculation is based on a projected annual return rate with return of 12%. Installment frequency monthly.
SIP (Systematic Investment Plan)
SIP allows you to invest a fixed sum at regular intervals. SIP is one of the most recommended ways to invest in mutual fund schemes as it is convenient. It also helps you average out the cost at which you buy the units of these funds. Read more about, What is Systematic Investment Plans (SIP)?
Lumpsum
When you make a one-time investment, it is called lumpsum. Lumpsum investments are generally done when people have got a big sum of money like bonuses or payments from a sale of an asset.
Types of Mutual Funds Based on Asset Class
Mutual funds in India are classified into different categories based on the asset class they invest in. Some popular categories are as follows.
Equity Mutual Funds
Equity funds invest a majority of their assets in stocks. These funds are classified into different categories based on the market cap of the stocks they invest in.
Types of Equity funds:
Large-Cap Funds
These funds invest at least 80% of their assets in the top 100 companies by market capitalization.
Mid-Cap Funds
These funds invest at least 65% of their assets in the next 150 (101st to 250th) companies ranked by market capitalization.
Small-Cap funds
Such funds invest at least 65% of their assets in companies ranked 251 and above by market capitalization.
Multi-Cap Funds
These funds invest at least 25% of their assets in each of the large, mid, and small-cap stocks.
| Top 5 Equity Mutual Funds | 5Y Returns (Annualized) % | |
| Quant Small Cap Fund | 40.16% p.a. | Invest Invest |
| Motilal Oswal Midcap Fund | 28.74% p.a. | Invest Invest |
| JM Flexicap Fund | 25.14% p.a. | Invest Invest |
| ICICI Prudential BHARAT 22 FOF Scheme | 24.56% p.a. | Invest Invest |
| ICICI Prudential Value Discovery Fund | 24.53% p.a. | Invest Invest |
See all Equity Mutual Funds
Debt Mutual Funds
Debt funds generate returns by lending money to corporates and the government by buying their debt papers. These funds are classified into different categories based on their lending period and credit quality of the papers.
Types of Debt funds:
Money Market Funds
These funds generate returns by lending to companies or governments for up to 1 year.
Corporate Bond Funds
These funds earn returns by lending mostly (at least 80%) to companies with the highest-rated debt papers.
Overnight funds
These funds earn their returns by lending to companies or governments for one business day.
Liquid Funds
These funds generate their returns by lending to companies or governments for up to 91 days.
| Top 5 Debt Mutual Funds | 5Y Returns (Annualized) % | |
| ICICI Prudential Gilt Fund | 8.52% p.a. | Invest Invest |
| SBI Magnum Income Fund | 8.29% p.a. | Invest Invest |
| ICICI Prudential Medium Term Bond Fund | 8.08% p.a. | Invest Invest |
| ICICI Prudential Short Term Fund | 8.0% p.a. | Invest Invest |
| ICICI Prudential Bond Fund | 7.86% p.a. | Invest Invest |
See all Debt Mutual Funds
Hybrid Funds
Hybrid funds invest in a mix of asset classes, including equity, debt, or gold. There are multiple categories of hybrid funds based on how much they allocate across different asset classes.
Types of Hybrid funds:
Aggressive Hybrid
These funds have to invest at least 65% of their assets in equities while it can't exceed 80%. The rest goes into debt.
Multi-Asset Allocation
These are hybrid funds that invest at least 10% of the total of their assets across at least three asset classes, such as equity, debt, gold, etc.
Dynamic Asset Allocation funds
Also known as Balanced Advantage Funds, these funds can go up to 0-100% in equities or debt based on predefined asset allocation models they follow.
Arbitrage Funds
These funds generate returns by using opportunities of price differences of securities in different markets.
| Top 5 Hybrid Mutual Funds | 5Y Returns (Annualized) % | |
| 22.36% p.a. | Invest Invest | |
| ICICI Prudential Multi Asset Fund | 20.91% p.a. | Invest Invest |
| HDFC Balanced Advantage Fund | 20.68% p.a. | Invest Invest |
| ICICI Prudential Retirement Fund - Hybrid Aggressive Plan | 18.32% p.a. | Invest Invest |
| HDFC Retirement Savings Fund - Hybrid Equity Plan | 18.27% p.a. | Invest Invest |
See all Hybrid Funds
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How To Start Your Investing Journey On ET Money?
At ET Money, we follow 3 easy steps to make mutual fund investments simple, convenient, and quick:
- 1
Select your preferred fund
- 2
Complete KYC & set up EasyPay without any paperwork
- 3
Make payment
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Our top Investors
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ET Money is a user-friendly app that has made buying mutual funds pretty easy. Details of each fund like past returns, expense ratio, etc. have been displayed clearly for investing strategically.
Mrigul Uppal
User since 2018
ET Money has made my search for investment products easier than ever. I can get all information related to investment products like mutual funds and NPS in one place.
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User since 2018
ET Money is a nice app that provides a good user experience. The funds have also been ranked by their experts which helps while taking investment decisions.
Simit Shah
User since 2018
Frequently Asked Questions
What is a Mutual Fund & How Does it work?
Mutual funds is a trust that pools investors' money. Investors are allotted units of the funds as per their share of investment in the pool of assets. This money is then invested across various types of mutual funds like equity, debt, and other securities by the fund manager appointed by the asset management company.
The objective of the fund manager is to generate good returns. The gains or losses generated by the fund are distributed among the unitholders (investors) in the proportion of the share of investment.
How to choose a good mutual fund investment?
There is no straight answer to this question. Different funds have different risk-return profiles. You need to choose a fund based on your risk-taking capabilities and the time horizon you have in your mind for the investment. So, you need to find a balance between your risk tolerance and the risk of the fund you are planning to invest in. For example, if you are willing to take high risk but your investment horizon is less than 3 years, you shouldn't invest fully in equity funds.
You may consider investing in a mix of equity and debt with more exposure to debt funds. Therefore, you need to choose the best mutual fund based on your risk appetite and time horizon.
How are mutual funds withdrawals taxed?
On withdrawal, if your redemption value is higher than the purchase price of a mutual fund, the same will be classified as capital gains. The gains from both equity (above a threshold limit) and debt funds are taxable. The gains are classified as short-term capital gains (STCG) or long-term capital gains, depending on the holding period.
In the case of equity funds, if you sell your investments before one year, gains will be classified as STCG otherwise, LTCG. In the case of debt mutual funds, if you sell your funds after 3 years, the gains will be classified as LTCG. However, gains on holdings sold before 3 years will be classified as STCG. You can read in detail about capital gains tax on mutual fund returns here
How can I invest in mutual funds on ET Money?
You can use our website or download ET Money mobile app to start investing in mutual funds on ET Money
