Mutual Fund Basics

Mutual funds have been steadily emerging as preferred investment options for retail investors and have become one of the attractive avenues to invest money. Such preferences arise from the convenience of investing in mutual funds and a wide range of mutual fund schemes investors may choose from. Such mutual fund schemes may invest in different asset classes, but also across spectrum of investments within the same asset class.

Investors may find themselves surrounded by various mutual fund scheme to invest in, spreading across different asset classes and scheme categories. If you are looking for an answer on ‘how to pick the right mutual fund,’ there cannot be a straightforward answer for selecting the right mutual fund scheme. 

Mutual funds are investment products that create a portfolio of securities from the money invested by different investors. The investment decisions are made by professional fund managers and a team of research analysts. As compensation for the fund management services, mutual funds charge certain expenses to the scheme through Total Expense Ratio (TER) towards fund management fee, selling and distribution costs, investor awareness expenses, etc.

As per SEBI (Securities & Exchange Board of India) guidelines on mutual fund schemes’' categorisation, liquid funds are debt funds that invest primarily in debt and money market securities with a maturity of up to 91 days. Accordingly, such funds invest in Treasury Bills (T-Bills), Commercial Papers (CP), Certificates of Deposit (CD), etc.

New-age and millennial investors prefer investing in equities directly as they can track the movements of their top stock picks and attribute the investment performance to themselves. Further, the intra-day price movements in share prices create further excitement for some investors. However, direct equity investing may be complex since it requires a lot of research and adequate knowledge of stock markets in general.