A mutual fund is a professionally managed money pool that invests in securities. There are different types of funds out there like equity funds and debt funds. Unlike subsidiaries, this type of investment typically holds stocks (i.e., shares) from various companies together as one bundle instead of an individual stock or a series thereof.
The fund manager of an equity fund defines a possible risk level and investment approach in order to generate comparable returns to the benchmark of the scheme.
As an investor, you need to filter through the various investment options and find one that works best for you.
Choosing the right equity fund can be difficult, but here are some helpful points to remember when choosing a fund.:
1.The Size of the Fund:
is the total assets under management (AuM). While there are no definitions regarding the ideal size of a mutual fund, if it is too large or too small, the fund’s performance can get affected. One way of looking at it is by comparing AuMs with the category average.
mutual fund investors will be charged management fees. In general, more trading and active funds come with higher fees than passive funds. Compare the expense ratio to the category average before investing in a mutual fund.
The Risk-Reward ratio is the potential return you can earn for every rupee you risk investing in an equity fund. It's important to make sure that your RRR is in sync with your risk toleranthece levels to get returns worth your investment and maintain a low level of risk at all times.
There are many ways to categorize a mutual fund.:
Categories based on the purpose of the investment
A focused equity fund is a multi-cap fund that places limits on the number of stocks it can invest in, typically no more than 30. They are less volatile and can be better in polarized markets.
ELSS funds offer tax benefits under Section 80C of the Income Tax Act, 1961. You can avail a tax exemption up to Rs.1.5 lakh per financial year on your annual taxable income when you invest in these funds.
When you buy stocks in an equity fund, the profits from it are taxed as follows:
When you buy stocks in a typical stock portfolio, they are subject to taxes.
Capital gains can be beneficial
Tthe company no longer needs to bear the burden of The Dividend Distribution Tax (DDT) after April 2020. However, if they pay dividends in excess of Rs.5000 per year, a 10% tax will be deducted for that particular dividend payment. This is only while paying an option on dividends alone. You must still account from the taxes
Because equity funds vary in risk level, investment composition, and track record, it’s important to have your financial goals clearly defined before choosing a fund. You should also look for an appropriate investment that suits your needs.
When choosing a fund for investing, look at its performance over the past few years in relation to other funds that might be viable options. Look at those funds’ individual performances as well their comparative performance to both their benchmark and peer funds from within the same category. Consider those funds with consistent outperforming of benchmarks and peers when making your decision.
A list of mutual funds segregated into different markets.
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