Mutual Fund Basics

Equity Linked Savings Schemes (ELSS) are a special category of equity mutual fund schemes that provide tax benefits to the investors and are commonly known as tax-saving mutual funds. As of 30 June 2021, such funds manage around Rs. 1.36 lakh crores of AUM (Assets Under Management). ELSS funds are reasonably popular amongst retail investors, with 1.28 crore investor folios in such schemes as on that date 

Source: AMFI – Association of Mutual Funds in India

While the Covid 19 pandemic took the world by storm, one of the lessons of this crisis is the realization that we must all prepare for any such eventuality in the future. It is imperative to properly plan and manage one’s finances for building a financially secured future. Here is a beginner’s guide to financial planning in 2021 and for the future years: 

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.

When it comes to mutual fund investing, investors can choose between actively and passively managed funds. While both aim to provide market-linked returns to the investors, these funds tend to differ on many parameters.

Mutual funds are increasingly becoming the preferred option for retail investors, thanks to the growing awareness of this most transparent and professional money manager. The consistent monthly SIP inflows is a reflection of investor’s changing preference towards mutual funds. The data released by the Association of Mutual Funds in India (AMFI) shows that investors channelised Rs. 10,351 crores in mutual funds through Systematic Investment Plans (SIPs) in September 2021 alone and Rs.

With a wide range of mutual fund schemes are available for investments, it becomes imperative for the investors to carefully review the available options and then select the mutual fund schemes best suiting the risk profile, financial goals, and investment horizon. Different mutual fund schemes may be suitable for financial goals with varied investment horizons.

Income Tax laws in India provide several tax benefits and incentives to the taxpayers. Tax deduction under Section 80C of the Income Tax Act, 1961 is one of the most commonly used tax benefits. The section provides a deduction of up to Rs. 1.50 lakh to the taxpayers from their taxable income for making certain eligible payments and investment options.

mutual funds have been steadily emerging as a preferred investment option 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. However, investors may often be spoilt for choices amongst the available options and may be struggling to find the right mutual fund scheme that best suits their financial plans and risk appetite.

When investing in mutual funds, investors can invest under different options, such as growth option, payout of income distribution-cum-capital withdrawal option, income distribution-cum-capital withdrawal reinvestment option, etc. Each of these different options carries its respective pros and cons. This article aims to discuss each of these three options briefly to help the investors decide on choosing amongst these three options: