Family and Parenting

Mutual Fund-The Best Long Term Investment Plan

Mutual Fund-the Best Long-Term Investment Plan:
Written by Banani Chakraborty

Mutual fund, the best long-term investment plan, is a professionally managed company. It invests people’s money in stocks and bonds. It also earns a profit.

Table of Contents

Mutual Fund-the Best Long-Term Investment Plan:

In the first place, we will show our gratitude for having such a wonderful financial vehicle. Mutual funds are the best long-term investment plan for the rank and file. Actually, mutual funds are professionally managed companies. Generally, they invest money from a group of people. Moreover, they invest in portfolios of various stocks and bonds on behalf of numerous general people.

As our savings increases amazingly in the long run, it helps us to live life to the fullest.

What is a Mutual Fund?

what is mutual fund

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It is a financial vehicle and it collects money from a group of investors or institutions to make a pool of money to invest in various stocks, money market instruments, bonds and other assets.

Each investor owns a percentage of shares of the mutual fund, that represents his holdings, and proportionally participates in the profit and loss incurred.

Moreover, it helps the individual investor to enter professionally controlled portfolios of securities, equities and bonds with a very small amount. Indeed, it is a powerful inclusion and extremely helpful for how to save money to live life merrily.

How a Mutual Fund Works?

To begin with, a mutual fund collects money from various investors. Usually, there is a professional fund manager who manages this fund collectively. Then the company purchase shares, bonds and stocks with this collected fund. Indeed, they try to maximize the return by all possible means.

Because it produces a good profit in the long run, so we need patience. Additionally, we require a positive attitude. Only then we will be able to successfully continue it.

A Mutual Fund:

  • At first, pooled money from various investors (individuals).
  • Secondly, SEBI regulates all the activities of the fund houses.
  • Moreover, fund houses access to large portfolios.
  • Further, they are professionally managed.
  • Additionally, they give higher returns in respect of conventional investment in the long run.
  • Furthermore, investors can invest in small amounts.
  • Finally, after a certain time, it works like a savings account as we can withdraw any amount from here.

If we want to grow our savings, then mutual fund investment is the best and easiest.

Types of Mutual Funds:

types of mutual funds

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We can classify mutual funds generally in three categories. Usually, these groups depend on the risk involves an investment trait. Mutual funds are three types

  • Equity Funds.
  • Debt Funds.
  • Balanced or Hybrid Funds.

Equity Funds:

As a matter of fact, they primarily invest in the shares of diverse companies. If there is a surge of share prices, then our investments generate profit. While share prices fall, our investments experience a loss. Therefore, there is a moderate to high risk involved with equity funds, particularly in the short-term. In other words, it is suitable for those who can stay invested for the long term.

There are some sub-categories in a mutual fund like large, mid and small-cap.

There are some sub-groups like income-oriented, value, growth and others depending on the investment approach. Moreover, there are exchange-traded funds(ETFs), Sectoral Funds, Income Funds, Index Funds and etc.

To tell the truth, Equity Funds is the largest category.

Debt Funds:

They invest in government securities like various bonds, treasury bills and corporate deposits. And they earn a fixed income against that. Therefore, it bears less risk than equity funds. So it is apt for those people who are risk-averse. At the same time, they are looking for a short-term return.

 Balanced or Hybrid Funds:

They invest in both the balanced equity and debt instruments. The target is to balance between the risk and a fixed rate of return. The ratio is solely at the discretion of the fund manager. He settles the ratio of the investment amount in debt as well as equity instruments. In fact, his principal looks out are to cultivate the best possible return.

What is Mutual Fund Example?

In the first place, mutual funds may invest in stocks, bonds, treasuries and money market securities. Besides, they can invest in options, futures and currencies. To tell the truth, it depends on the declared purpose of the fund. However, it varies with regard to content and risk.

Moreover, the Funds issue and redeem shares as per individual investors demand at the fund’s NAV or net asset value.

Mutual Fund Basics:

Mutual fund companies pool money and invest. So, the value of mutual fund houses depends totally on the performance of the securities, equities and bonds, they decided to invest or buy.

Therefore, as we buy a share or a unit from any mutual fund, actually we buy its performance or portfolio value.

What is NAV/Net Asset Value?

what is NAV

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Actually, the share price of any mutual fund is net asset value or NAV which is the division of total asset value and the total amount of outstanding shares i.e. the number of shares in the hands of all investors.


Investors purchase or redeem as per the current value of NAV.

Most importantly, NAV value changes only at the end of every trading day and remain the same until the end of the next trading day.

Lock-in Period:

This is the duration during which an investor is unable to withdraw his investment or sell his units. In all honesty, it varies from funds to funds. Usually, open-ended funds have no lock-in period, although it is better to keep the fund for at least, one year. While the tax-saving funds (ELSS) bear 3 years lock-in period.

BENEFITS/ Advantages OF INVESTING IN MUTUAL FUNDS:

advantages of mutual fund

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The reasons to buy a mutual fund and its benefits are stated below.

1.Diversification:

Indeed, the greatest benefit and the beauty of investing in mutual funds is diversification which means that we are able to buy various stocks or bonds.

2.Professional Management

Professional Management is able to analyze the market and ensures suitable investment and generates maximum profit. Because the expert managers and analysts always research and analyze current and potential holdings for the mutual fund schemes, therefore they can ensure high return if they are provided a few years of time.

3. Mutual Funds Offer Varieties

Mutual Funds offer varieties like the stock fund, sectoral fund, equity fund, hybrid fund, debt fund, dividend yield fund, solutions fund, balanced fund, ELSS fund, bond fund etc. The availability of different types of funds allows us to create a diversified portfolio at a very low cost and without any difficulty. We can choose according to our requirements.

4. Mutual Funds Are Accessible

We can start a mutual fund with a very low amount. Generally, in India, we can start with a minimum of Rs 500. As mutual funds can be easily accessed, so low cost, as well as ease of use, make them readily accessible.

5.Systematic Investing and Withdrawals with Mutual Funds

It is very easy to take advantage of systematic investment with mutual funds. Mutual fund companies allow investors to invest directly into a mutual fund and money is pulled directly from a bank account on a stipulated date per month and invested directly in the mutual fund. On the other hand, we can withdraw money just after one year from a mutual fund and the amount will be deposited directly into a bank account. Normally no fees are required for this.

6. Mutual Funds Amount Reinvested Automatically

Amounts of capital gain and dividend if any and total monthly investment amount are reinvested automatically. Therefore, we see and enjoy the power of compounding interest.

7. Mutual Funds Are Liquid




Whenever we want to withdraw some money or total money from our mutual fund account, we can get cash from most mutual funds within two to three working days after our withdrawal request and the process is very easy and simple. We can do so on the internet sitting at the cosy comfort of our home.

8. Mutual Funds Build Wealth.

Most importantly, mutual funds are the best way for the general people like us to create a big wealth in our favour if invested for a very long period of time. Even if we can save a very small amount of rupees 500/- per month, still it will give us a very big amount. It also plays a vital role in our self-esteem.

Disadvantages of Mutual Funds:

Due to professional management, diversification and liquidity mutual funds are attractive options for all. They may be a young generation, individual investors or novice in the money market. The common objective is that they are reluctant to managing directly their money. Nevertheless, they expect more return than conventional savings.

However, mutual funds have some drawbacks.

Fluctuating Returns:

In all honesty, mutual fund investments are subject to market risk. Therefore, it may face a loss. The total amount decreases. Anyhow there is no guaranteed return. Even the past years’ performances are not guaranteed for the future. The NAV fluctuates daily basis. As a result, the return is not the same for all.

Cash Drag:

To tell the truth, that after a certain time we can withdraw our money totally or partially from mutual funds. In order to supply the money, the mutual fund houses have to hold a significant amount in cash. Consequently, they cannot invest that amount of money. As this cash cannot generate a return, so this is actually cash drag.

However, diversification may cause problems for individuals.

Moreover, we sell our units today. We will get the amount at least, after three full working days.

By the by, we need motivation to purposefully maintain it. (Also read how to stay motivated)

How Can We Make Money from Mutual Funds?

Indeed, we can gain from mutual funds in three ways.

Dividend: If a fund obtains interest or dividend in its portfolio against the securities, it then proportionately distributes that amount among all its investors.

We can receive our interest or dividend directly or can reinvest it again in the fund.

  • Capital gain: Capital gain occurs when the fund house decides to sell a security because the price has gone up, (And vice versa is a capital loss.) Some funds annually distribute capital gains to its investors.
  • Net asset value (NAV): We can also sell part or total units after a stipulated time. If the NAV is higher than our purchase value, we will gain.

Is Mutual Funds Safe?

At the first instance Indians want the safety of their deposited amount and to tell the truth, Mutual funds are very safe. As, SEBI, a government organization totally controls the performances of all the companies, therefore it is very safe and secured.

As far as investment in mutual funds is concerned, they are safe as the company or institution will by no means be able to disappear with our invested money.

Moreover, no investment is totally risk-free in mutual funds as it is directly related to the ups and downs of the share market. But if we can invest in top funds for the long term, say 10 years or more, we will gain more than all the running savings schemes. Though there is no guarantee of future returns till the past performances of good mutual funds for over 20 years can make us hopeful of a good return in future.

What is SIP:

what is sip?

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To begin with, SIP means Systematic Investment Plans. Actually, it is a system which allows us to invest a small amount after a stipulated time. Usually, we invest money per month through this SIP.

Sip is a fascinating investment option. In fact, this is necessary to achieve our financial goals. At first, we have to decide how many funds we need. Then, we have to decide the SIP amount. Generally, we start mutual funds through SIP to achieve those financial goals which require a lump sum amount. These are generally

However, to achieve all the financial goals we need goal setting strategies.

SIP Calculator:

There is a SIP calculator available in the market. From here, we can make an idea of our expected return against a monthly SIP. For this, we need to assume a rate of return. It is a tentative return, not the exact amount. The exact return from the mutual fund investments may be less or more.

Benefits of SIP:

Benefits of SIP are as follows:

  • At first, we can start as low as Rs. 500 per month.
  • Secondly, we can easily accomplish our lifetime financial goals.
  • Thirdly, it is regular investments.
  • As the invested amount is small, therefore we can continue it for a long time or even for a lifetime.
  • Moreover, we need not waste our valuable time for the market.
  • Further, it balances market risk as we purchase it at a regular interval.
  • Furthermore, SIP of mutual funds creates financial discipline.
  • Finally, it reduces our various tension and stress. Apart from this, it also performs brilliantly as a financial stress management technique.

How SIP works?

  • At first, we will choose the fund house and the fund name along with the amount of investment. Obviously, the tenure will be monthly although some other options are available.
  • Then, on a fixed date of every month, the stipulated amount will be deducted from the investor’s bank (savings) account.
  • Further, the fund house will allot units against the invested amount. In fact, the NAV of the fund is the unit price. Therefore, the NAV will decide the total unit.
  • Besides, in this way every month some units will add with the last month’s units.
  • The investor can any time redeem the total or partial amount. Even he may switch the fund house or the scheme at any time.
  • We may also increase our investment amount and choose many a fund as per our wish.




However, it is possible to save money being a housewife with the help of SIP. Even the housewives can save for the future security of her girl child.

Some Facts of Mutual Funds in India:

  • In all honesty, the Indian Mutual Fund Industry(IMFI) is experiencing an exponential rate of growth.
  • Assets Under Management(AUM) in India amounts to Rs. 26,13,666 crores as on 31st October 2019.
  • Average AUM of IMFI was Rs.26,32,824 crores for the month of October 2019.
  • The IMFI witnessed a sharp growth of the AUM from Rs.7.75 trillion as on 31.10. 2009 to Rs.26.33 trillion as on 31.10.2019. It is around 3 and a ½ fold increase in a time span of the last 10 years.
  • By the by, in India there are a total of 44 AMFI (Association of Mutual Funds in India) registered fund houses. They together run more than 2500 mutual fund schemes.
  • Moreover, it rises from Rs.10.96 trillion as on 31.10. 2014 to Rs. 26.33 trillion as on 31.19.2019. This is approximately 2 ½ time increase in a short span of only 5 years.
  • However, the Industry’s total AUM crossed Rs.10 Trillion (Rs.10 Lakh Crore) milestone for the first time in Indian history in May 2014.
  • In a short time, roughly a span of three years, the AUM size surged more than twice. It crossed the landmark of Rs. 20 trillion (Rs. 20 Lakh Crore) for the first time in August 2017.
  • The total number of accounts or folios stood at 8.63 crores (86.3 million), as per mutual fund parlance as on 31.10.2019. While that of Equity, Hybrid and Solution Oriented Schemes stood at 7.71 crores (77.1 million). These are the largest segments where the maximum investment amount goes.
  • As a matter of fact, IMFI is witnessing a rise in the no. of folios during the last 65 consecutive months.

History of Mutual Funds in India:

Indian mutual funds started in the year 1963. It was Unit Trust of India (UTI).

Mutual Funds witnessed five distinct phases in India. These phases are as follows:

First Phase (1964-1987):

Indian Mutual Fund industry started a long ago in 1963. Central Government, as well as Reserve Bank of India(RBI), formed UTI in 1963. The target was to develop common people’s interest and consciousness about mutual funds. In 1978, RBI de-linked UTI. Then the regulatory and administrative control was bestowed upon the Industrial Development Bank of India (IDBI) instead of RBI. As a matter of fact, UTI launched Unit Scheme 1964 (US ’64) as their first scheme. The AUM of UTI at the end of 1988 was Rs. 6,700 crores.

Second Phase (1987-1993):

In the year 1987, Indian mutual funds marked the first entry of Public Sector Mutual Funds.

Not only Public Sector banks but also Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) entered the market. (Remember, Life Insurance Policies are totally different). The first, public sector, ‘non-UTI’ mutual fund was SBI Mutual Fund. It started its journey since June 1987. Thereafter, came

  • Canbank Mutual Fund in December 1987.
  • Life Insurance Corporation mutual fund in June 1989.
  • Punjab National Bank Mutual Fund in August 1989.
  • Indian Bank Mutual Fund in November 1989.
  • Bank of India in June 1990.
  • GIC mutual fund in December 1990.
  • Bank of Baroda Mutual Fund in October 1992.

The AUM of MF Industry was Rs. 47,004 crores at the end of the year 1993.

Third Phase (1993-2003):

This phase marked the entry of Private Sector Mutual Funds.

The Indian securities market gained a lot of importance because of the establishment of SEBI. However, it came in action since April 1992. Their primary aim was to protect the investor’s interests in the securities market. Moreover, they will promote the development and regulate the securities market.

The SEBI introduces its first Regulations to control all mutual funds, except UTI, came in the year 1993. Erstwhile Kothari Pioneer merged with Franklin Templeton MF. It was the first private sector MF.

They did the registration in the month of July of 1993.

With this, the Indian MF industry witnessed the beginning of a new era. It, in turn, widen the scope of choice of the Indian investors.

SEBI revised their initial rule. Then they published a revisionary comprehensive set of MF regulations in 1996. This SEBI (Mutual Fund) Regulations, 1996 is still applicable.

MF houses and their schemes increased over the years. Also, many foreign companies started mutual funds in India. Moreover, there were several mergers and acquisitions in the MF industry during this phase.

As at the end of January 2003:
  • There was a total of 33 MFs
  • Total AUM amounts to Rs1,21,805 crores
  • UTI’s AUM stood Rs. 44,541 crores.
Fourth Phase (February 2003-April 2014):

In February 2003, UTI was bifurcated after the abolishment of the Unit Trust of India Act 1963. As a result, two separate entities came into existence. Of which, UTI Mutual Fund started functioning under the SEBI MF Regulations. Moreover, several mergers took place among many private sector funds. However, the MF industry started its consolidation.

In fact, there was a global recession in 2008- 2009. Therefore, securities markets all over the world including India was badly affected. As a result, most of the investors had lost their hard-earned money. Consequently, the faith in MF investments was upset to a great extent. SEBI then decided to abolish the entry load. However, after a lean period, it again started to gain speed since 2011.

Fifth (Current) Phase-Since May 2014

Most importantly, in September 2012, SEBI announced numerous progressive measures for mutual funds. The target was to “re-energize” the IMF industry. Besides, they aim more penetration, particularly in tier II and tier III cities.

Anyhow, the measures earned a grand success. Since May 2014, the Industry so far witnessed an upsurge both in the AUM and the number of investor folios (accounts).

Name of Some Top Schemes:

equity mutual fund

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Equity: Large Cap:
  • Mirae-Asset Large Cap Fund Reg(G).
  • ICICI Pru- Bluechip Fund Reg (G).
  • Axis-Bluechip Fund (G).
  • SBI- Bluechip Fund (G).
  • Aditya Birla SL-Frontline Equity Fund Reg(G).
  • Nippon India- Large Cap Fund (G).
  • HDFC- Top100 Fund (G).
  • Can the Robeco- Bluechip Equity Fund (G).
  • Tata- Large Cap Fund Reg(G).
Equity Multi-Cap:
  • Invesco-India Multicap Fund (G).
  • IDFC-Multi Cap Fund Reg(G).
  • Kotak- Standard Multicap Fund (G).
  • Motilal Oswal-Multicap 35 Reg (G).
  • Nippon India- Multi-Cap Fund (G).
  • Parag Parikh- Long Term Equity Fund Reg (G).
  • UTI- Equity Fund Reg (G).
  • SBI- M Multicap Fund Reg (G).
  • Aditya Birla SL- Equity Fund Reg(G).
Equity ELSS:
  • Quantum- Tax Saving Fund Reg (G).
  • Tata-India Tax Saving Fund Reg (G).
  • Motilal Oswal- Long Term Equity Fund Reg(G).
  • Axis- Long Term Equity Fund (G).
  • Aditya Birla SL- Tax Relief 96 Fund Elss Reg(G).
  • Kotak- Tax Saver Scheme (G).
  • L & T- Tax Saver Scheme (g).
  • ICICI Pru- Long Term Equity Fund Reg(G).
  • HDFC- Tax Saver (G).
  • Mirae- Asset Tax Saver Fund Reg (G).

Equity Large and Mid Cap:
  • Can Robeco- Emerging equities Reg (G).
  • Principal-Emerging Bluechip(G).
  • Quant- Large and Mid Cap Fund (G).
  • Mirae- Asset Emerging Bluechip Fund Reg(G).
  • Sundaram- Large and Mid Cap Fund (G).
  • Tata- Large and Mid Cap Fund (G).
  • LIC- Large and Mid Cap Fund- Reg (G).
  • SBI- Large and Mid Cap Fund (G).
  • HDFC-Growth Opportunities Fund (G).
Equity Sectoral:
  • ICICI Pru- FMCG Fund (G).
  • Aditya Birla SL- India Gen Next Fund Reg(G).
  • ICICI Pru-Banking and Financial Services Fund Reg(G).
  • ICICI Pru- Technology Fund (G).
  • UTI- Transportation & Logistics (G).

However, SBI, AXIS, HDFC, ICICI prudential, Aditya Birla SL, Motilal Oswal, Tata, Nippon India, UTI, IDFC, Kotak Mahindra, DSP are very good Mutual Fund Houses.

Top 20 Mutual Funds Houses in India:

Below is the list of Mutual Funds in India in terms of AUM in descending order as on 10.10.2019.

 

Mutual Funds AUM (Rs.Cr)
HDFC 376867.78
ICICI Prudential 351234.08
SBI 321011.3
Aditya Birla Sun Life 254047.44
Nippon India  (previously Reliance MF) 203409.12
Kotak Mahindra 168601.26
UTI 154229.01
Franklin Templeton 125109.05
Axis 105579.28
IDFC 94362.55
DSP 75415.56
L&T 69213.42
Tata 49646.07
Mirae Asset 33282.15
Sundaram 30613.1
Invesco 23557.11
Motilal Oswal 19011.98
Canara Robeco 16578.36
LIC 15467.84
Edelweiss 11763.71

As a matter of fact, AUM plays a very vital role in a lot of investors. They think AUM is another important aspect to take investment decisions. However, Fund Houses use it to attract investors.  In other words, AUM indicates a company’s position in comparison to its competitors.

How to Buy Mutual Funds:

We can buy mutual funds both online and offline. Moreover, we can buy them directly or through brokers/distributors.

Ways to Invest in Mutual Funds.

To begin with, there are four ways in which we can start mutual fund investments. These are:

  1. Offline investment directly with the fund house

As a matter of fact, here, we invest in a mutual fund scheme directly. At first, we go to the nearest branch office of the said fund house. We need the following documents –

  • Proof of Address
  • Proof of Identity
  • Cancelled Cheque Leaf
  • Passport Size photograph

At first, the fund house will provide us with the application form. Then we will fill it and submit them, along with the necessary documents.

2.Offline investment through a broker

In all honesty, it is almost the same as the above. The only difference is that we will go to the broker house instead of the fund house. They will guide as well as give us adequate knowledge. Besides, they will suggest and help to choose the suitable fund. Instead, the broker house will take some charge for this.

3.Online through the official website

Almost all the fund houses provide this facility nowadays. These days they generally offer the online facility to invest in mutual funds. Indeed, we need to follow the instructions. The company also provides necessary instructions on the official website of the fund house. Then we will submit it after filling all the relevant information. We also require to complete the e-KYC process online. Generally, we have to give our Aadhar and PAN number for this. Then the online verification will be done. After successful verification, we can start our investment. It is not only easy and quick but also hassle-free. Hence, numerous investors prefer it.

4.Through an app

As a matter of fact, many fund houses have their own app. Investors, at first, download the app on their mobile device. Then it will let the investors invest. An investor can buy or sell units, when required, through this app. Further, he can view his account statements along with check all the details related to his folio.


Some of the fund houses that allow investments through an app are Axis, ICICI Prudential, Aditya Birla SL, HDFC and SBI Mutual Fund.

Moreover, Karvy and myCAMS also allow through app investment facilities. Besides, investors can invest in multiple fund houses in one platform.

Most importantly, the reason for investment in Mutual Funds is to get more returns compared to traditional investments. It is possible for a wider market exposure as well as professional fund management. We can avail this benefit against a very nominal initial capital through the Systematic Investment Plan (SIP). All these help us better

Moreover, they are very good as long-term investments because the longer the period of investment, the more returns we can earn. The reason behind it is the power of compounding where our returns are also able to earn returns. Finally, we will be able to better our happiness.

It is also clear to us the reasons to save money through mutual funds.

Finally, we shall set our goals and start SIP accordingly. If already done, then it is ok. If not, we will not delay.

May read my following articles:

About the author

Banani Chakraborty

1 Comment

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    If you happen to be interested feel free to shoot me an email.
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