Mutual Funds Basics

As per income tax laws, all taxpayers must file their Income Tax Return (ITR) for the previous year, within the prescribed due dates, during the assessment year. The due date for filing tax returns for salaried taxpayers & non-audit businesspersons and professionals is usually July 31. Sometimes this date may be extended by the Finance Ministry.

Since the terms  'financial year', 'previous year' and 'assessment year' are often used in income tax laws, it’s helpful for all taxpayers to know their basic meaning. Read on to know the meaning and importance of these terms.

Here is a simple quiz question. “What do you need to meet life’s major financial goals like children’s higher education and retirement?” You have got it right if your answer is ample savings. But that was the easier part. Here’s the challenging question, “How do you create ample savings for these needs that require substantial sums?” For an individual investor, getting the right answer involves quite some doing as this involves making the right investments over long periods.

Back in my school days I used to mug up reams and reams of chemical formulas, not knowing if I would ever use them in the future. In the investing world those esoteric formulas, now seem rather meaningless. However, one concept that is still stuck in my head is that of an Isotope which I likely encountered in Class IX or X. The concept of ‘elements’ is the very foundation of Chemistry. An Isotope of an element is a similar atom with same number of protons but different neutrons.

Investors may choose to invest in equity markets through two primary investment strategies: active and passive. Active investing refers to the active selection of stocks in the portfolio depending on company fundamentals and other parameters. In contrast, passive investing refers to tracking a benchmark index and replicating its composition in the portfolio. When a scheme is actively managed, the fund manager decides which stock to invest and in what proportion to invest.

New Fund Offer(NFO) refers to the new mutual fund schemes being offered to the investors. This is akin to Initial Public Offering (IPO) made by the unlisted companies for their equity shares, wherein the companies offer shares to the public for the first time. NFOs aim to attract household savings by offering new mutual fund schemes to the investors.

Raksha Bandhan signifies the strong bond between brothers and sisters. Sisters tie Rakhi and wish for the wellbeing of their brothers, and in return, brothers promise to keep their sisters protected throughout their life under every circumstance. Brothers also present a gift as a token of their love for the sister. 

When investing in mutual funds, one must choose the mutual fund schemes that best suit their financial goals and risk appetite. In addition, selecting the equity investments basis their market capitalisation is one of the selection criteria, as different market cap segments carry different risk-reward trade-offs.

Systematic Investment Plan (SIP) is a facility offered by the mutual funds to investors. Here one can opt to invest in a mutual fund scheme on regular basis by registering a standing instruction, wherein mandated amount by the investor is deducted automatically from the bank account and invested in the mutual fund scheme as specified in the registration process.

It is always advised, "one should not have all eggs in the same basket." This advice works well in the investment world too, as no single asset class has always been a winner for investors. As such, the investors tend to prefer having a diversified investment portfolio across different asset classes.