Mutual Funds

What is Mutual Funds and how to invest in mutual funds through SIP

Agenda of this article:-

  • What is the mutual funds.
  • Advantages of the mutual funds.
  • Types of mutual funds.
  • Regular vs direct plans / Growth vs divided / Equity vs debt.
  • Taxation on mutual funds.


  • What is mutual fund:-


Mutual fund is a type of financial instrument which collects the money from different sources and invests it in the different financial instruments for generating profits. Many people want to invest in stocks markets , but they dont have idea or time to track the stock markets .The mutual fund is made solely for the purpose that, these people who wanted to invest in stock market but they didn’t have the idea of investing, can invest easily via Mutual Funds and Mutual funds will be managed by a profession team of stock market experts.


  1. Benefits:-

The main important benefit is that the investor who doesn’t know where to invest the money he got, can easily invest in mutual funds and buy it . A highly qualified team of experts including a fund manager will take care of this money collected from different people and in turn will buy sell stocks and other financial instruments on their behalf.

  • Types Of Mutual Funds :-

By structure:-

  • Open-ended schemes:- Mutual fund schemes that run forever and you can invest in it anytime
  • Close-ended schemes:- It has certain window to invest. You can invest withing that period


By investment objective:-

  • Growth schemes:- Returns are more, No regular income.
  • Divided schemes:- Returns are at regular intervals.
  • Balanced schemes:- This gives both of the above two.


Other schemes:-

  • Money market scheme:- very short return.
  • Tax saving scheme:- example E.L.S.S
  • Special scheme:- like sector funds.
  • Index schemes:- investment in Nifty/ Sensex.


Classification:- Direct plan/ regular plan.

  • Direct plan funds directly from mutual funds/ broker, saves mediator.
  • Regular plan has more expenses as it involves mediator.
  • But in most of the cases most plans comes with regular plans.


Equity vs Debt Funds:-

  • Funds that invest more than 65%  in Equity are classified as equity funds . Funds that invests mainly in governments securities and debts are called debt funds.
  • Equity funds have  more growth  , more risk and less tax
  • Debt is more secure, but less return and higher tax. 


Equity oriented fund:-

  • If you are holding funds more than one year, you need not pay taxes.
  • But if you sell the units earlier then in the received amount is 15% is deducted.

Debt oriented fund:-

  • If the units are sold earlier than 3 years then you have to pay as per tax slab.
  • If more than 3 years, this will cost you 20% including indexation.
  • Dividend:- tax free but mutual funds companies divided distribution at 28% rate.