Common Questions on Mutual Funds
In this post, we’ll walk you through the most common questions on mutual funds, breaking down the jargon and answering common questions.
Ever wondered how a mutual fund is like a buffet? We’ll explain it in a way that just makes sense. And that NAV thing? We’ll explain that too, promise.
Thinking about starting a SIP? We’ve got your back. And for those who want to dig deeper, we’ll talk about XIRR and why it matters.
We’ll also learn about who keeps an eye on mutual funds in India, and give you some practical tips on how to get started online. And don’t worry, we’ll help you navigate those expense ratios.
Plus, we’ll explore some cool stuff like ELSS and NFOs. They’re not as complicated as they sound, we promise.
Whether you’re a beginner or an experienced investor, we’re here to help you make sense of it all. Stick around for some down-to-earth advice that can really help you make the most of your money.
Mutual funds is a popular investment vehicles that allow individuals to pool their money together with other investors. These funds are managed by professional fund managers, who invest the pooled capital into a diversified portfolio of stocks, bonds, or other securities. This provides investors with a convenient way to gain exposure to a wide range of assets without the need for in-depth knowledge or research of financial markets.
Think of a mutual fund as a buffet in a restaurant. Instead of ordering individual dishes, you pay a fixed price and have access to a wide variety of dishes. The buffet is managed by expert chefs (fund managers) who select and prepare the dishes (assets) for you. This way, you get a taste of different flavors without the hassle of ordering each dish separately.
What is NAV in mutual funds?
The Net Asset Value (NAV) represents the per-unit market value of a mutual fund scheme on a specific date. NAV is calculated by dividing the total value of all the fund’s assets (stocks, bonds, cash, etc.) minus its liabilities (expenses, fees, etc.) by the number of outstanding units.
NAV can change daily based on the market performance of the fund’s underlying assets. When you invest or redeem mutual fund units, you do so at the NAV prevailing on that day.
NAV helps investors understand the value of their investment in the fund. A higher NAV doesn’t necessarily mean a better fund; it depends on the fund’s performance and objectives.
How mutual funds work?
Mutual funds operate by pooling money from multiple investors to create a large fund. This fund is then managed by a professional fund manager or a team of managers under Asset Management Companies (AMC). The fund manager’s role is to strategically invest this pooled capital in a diversified portfolio of stocks, bonds, or other securities.
Here is a simple overview of how mutual funds work:
- Imagine that you and 100 other people each invest ₹1,000 in a mutual fund.
- The money manager uses the ₹100,000 to buy shares of 10 different companies.
- As the stock market goes up, the value of the fund’s portfolio increases.
- As a result, the value of your shares in the fund also increases.
- If you decide to sell your shares, you will receive the current net asset value (NAV) per share, which is calculated by dividing the total value of the fund’s assets by the number of shares outstanding.
What is SIP in mutual funds?
SIPs are a good way to invest for your retirement, college savings, or other financial goals. However, it is important to understand the risks involved before investing in any mutual fund.
What is XIRR in mutual funds?
XIRR stands for Extended Internal Rate of Return. It is a measure of the returns on an investment that takes into account multiple cash flows that occur at different times. XIRR is commonly used to calculate the returns on mutual fund investments, which often involve multiple investments (SIPs) and withdrawals (redemptions) at different times.
XIRR formula in excel is:= XIRR (value, dates, guess)
To calculate the XIRR of a mutual fund investment, you would need to know the following information:
- The date and amount of each investment (SIP)
- The date and amount of each withdrawal (redemption)
- The current value of your investment
Who regulates mutual funds in India?
The Securities and Exchange Board of India (SEBI) regulates mutual funds in India. SEBI is the apex regulator of the securities market in India and is responsible for protecting the interests of investors and promoting the development of the securities market.
How to invest in mutual funds online?
There are a number of mutual fund platforms available in India, such as Groww, Upstox, Kuvera, Paytm Money, and Zerodha. Along with these platforms you can directly invest through banks and AMC websites directly. Compare the features and fees of different platforms before choosing one.
What is the expense ratio in mutual funds?
Think of the expense ratio in a mutual fund like the cost of running a car. When you own a car, you have to pay for things like fuel, maintenance, and insurance.
This ratio is expressed as a percentage of the total assets managed by the fund. For instance, if a mutual fund has an expense ratio of 1%, it means that for every ₹100 you invest, ₹1 is used to cover these expenses.
A lower expense ratio is generally better, as it means more of your money is working for you. So, when choosing a mutual fund, it’s a good idea to look for ones with lower expense ratios.
What is the expense ratio in mutual funds?
IDCW in mutual funds stands for Income Distribution cum Capital Withdrawal. It’s a facility provided by mutual funds to distribute income to investors from the profits earned by the fund. This distribution can be in the form of dividends or interest. Additionally, it allows investors to withdraw a portion of their invested capital if they choose to do so. This feature provides flexibility to investors in managing their investments according to their financial needs and preferences. Keep in mind that the availability and terms of IDCW may vary depending on the specific mutual fund scheme.
What is IDCW in mutual funds?
Think of the expense ratio in a mutual fund like the cost of running a car. When you own a car, you have to pay for things like fuel, maintenance, and insurance. Similarly, in a mutual fund, there are costs to run it, like paying the fund manager, administrative expenses, and other fees.
How to invest in mutual funds in Zerodha?
To invest in mutual funds in Zerodha, you need to have a Zerodha demat account. If you don’t have a demat account, you can open one online on the Zerodha website.
Once you have a Zerodha demat account, you can follow these steps to invest in mutual funds:
- Log in to your Zerodha account.
- Click on the Coin tab.
- Search for the mutual fund scheme that you want to invest in.
- Click on the “Buy” button.
- Enter the amount that you want to invest.
- Click on the “Buy” button again to confirm your purchase.
How to set up a SIP in Groww?
Step 1: Go to groww.in/mutual-funds Select the mutual fund scheme that you want to invest in from a wide variety of funds based on your requirements and goals.
Step 2: Click on the “Monthly SIP” button, Enter the SIP Amount and SIP Date and Click on Start SIP
Step 3: Enter the OTP received on your registered email id and mobile number and Confirm your SIP.
What is ELSS mutual funds?
ELSS stands for Equity Linked Savings Scheme. It’s a type of mutual fund in India that primarily invests in equities or stocks. What makes ELSS unique is its tax-saving benefit. Investments made in ELSS funds are eligible for a deduction from taxable income under Section 80C of the Income Tax Act, up to a specified limit of ₹1.5 Lakhs. This makes ELSS a popular choice for individuals looking to both save on taxes and potentially earn returns from the stock market. ELSS funds typically have a lock-in period of 3 years, meaning the invested amount cannot be withdrawn for three years.
What is Index funds?
An index fund is a type of mutual fund or exchange-traded fund (ETF) designed to mirror the performance of a specific market index, such as the S&P 500 or the Nifty 50. Instead of actively selecting and managing individual securities, index funds aim to replicate the holdings and returns of a chosen benchmark index.
What is NFO in mutual funds?
NFO stands for New Fund Offer. It’s the initial offering period of a new mutual fund scheme just like IPO’s. During this period, the fund house offers units of the new scheme for subscription to investors. It’s essentially the first time the fund is made available to the public for investment. Investors can buy units at the face value during the NFO period. After the NFO period ends, the units are then available for purchase or redemption at the Net Asset Value (NAV) like any other mutual fund scheme.
What are the types of mutual funds?
Mutual funds are categorized into several types based on their investment objectives, asset allocation, and risk profiles. Here are the main types of mutual funds:
Equity Funds: stocks or equities.
Debt Funds: government bonds, corporate bonds, and other debt instruments.
Hybrid or Balanced Funds: stocks and bonds.
Money Market or Liquid Funds: treasury bills, commercial paper, and certificates of deposit.
Tax-Saving Funds (ELSS): Stocks or equities.
Index Funds: specific market index
Sectoral or Thematic Funds: Specific sectors or themes
Mid Cap Funds: Mid-sized companies
Small Cap Funds: Small, emerging companies.
Gilt Funds: Government securities
Fund of Funds: Other mutual funds.
What is alpha in mutual funds?
Alpha is a measure of a fund’s performance relative to its benchmark index. It indicates the fund manager’s ability to generate returns that surpass the market’s performance.
In simple terms, if a fund has a positive alpha, it suggests that the fund manager has added value beyond what the market provided. Conversely, a negative alpha implies that the fund’s performance lagged behind the market.
For example, if a fund has an alpha of 1.0, it suggests that it outperformed its benchmark by 1%. Conversely, an alpha of -1.0 means it underperformed the benchmark by 1%.
Conclusion
As we wrap up the post on mutual funds, remember this: investing doesn’t have to be daunting. We at Market Insiderz will help you by simplifying the topics. It’s like learning any new skill – it takes time, but with the right knowledge, you’ll find your way to understand the concepts.
Whether you’re aiming long-term goals like retirement or shorter milestones like buying a gadget, mutual funds can be a powerful tool. Just keep in mind the basics we’ve covered – NAV, SIPs, XIRR and expense ratios.
And don’t forget, you’re not alone in this. MarketInsiderz is here to be your guide. We’re always cooking up fresh insights and easy-to-follow tips.
So take a breath, trust the process, and let’s make your financial journey an exciting one. Here’s to smart investing and achieving your dreams!
