“Aren’t all mutual funds the same?” you might wonder. After all, isn’t it a Mutual Fund?” Gokul enquired. Harish, a Mutual Fund distributor, smiled at him. Many people had made such a statement before, and he was all too familiar with it.
A lot of individuals believe that all mutual funds are the same. There are several sorts of funds, the most common of which are equity and debt funds. Where the money is invested is the distinction between the two. Equity funds engage primarily in equity shares and related securities, whereas debt funds invest in fixed income instruments. The characteristics of both equities and fixed income instruments determine how the respective schemes will behave.
What is meant by equity fund?
Mutual funds that invest largely in stocks are known as equity funds. You put money into the fund in the form of a SIP or a lump sum, and it invests it in various equities stocks on your behalf. The resulting profits or losses in the portfolio have an impact on the Net Asset Value of your fund (NAV). Of course, there are some complexities to consider, but this is the heart of equities mutual fund investment. Being a prudent long-term investor, on the other hand, can help you learn more about how an equity mutual fund works. Let’s take a closer look at them.
Which is safe equity or debt fund?
The key difference between equity and debt funds is risk, with equities having a higher risk profile than debt. Investors should be aware that risk and return are inextricably linked; in other words, larger returns need more risk.
Is fund fund a debt or equity?
Rather than investing directly in stocks, bonds, or other assets, a ‘Fund Of Funds’ (FOF) is an investment strategy that involves maintaining a portfolio of other investment funds. A Mutual Fund FOF Scheme invests primarily in the units of another Mutual Fund scheme. Multi-manager investing is a term used to describe this sort of investment.
These plans allow investors to spread their money among many funds, thereby reducing risk. The units of other mutual fund schemes, either from the same mutual fund or from different mutual fund houses, serve as the underlying investments for a FoF.
Fund of funds, according to experts, are better suitable for smaller investors who want access to a variety of asset classes or for those whose advisers lack the knowledge to make single manager recommendations.
A FOF is classified as a non-equity fund under India’s existing income tax framework, and is therefore taxed as such.
In other words, even if a FOF may invest in equity-oriented funds, the FOF is not considered an equity-oriented fund, and hence does not qualify for the tax incentives now available to equity funds. As a result, there is a dual imposition of Dividend Distribution Tax (DDT) in the case of FOFs investing in equity securities of domestic companies via EOFs, namely when the domestic companies declare dividends to their shareholders and when the FOF distributes dividends to its unit-holders.
Which is best to invest equity or debt?
Equity mutual funds are mutual fund schemes that invest at least 65 percent of an investor’s money in company equity shares. Such funds with equity as their underlying asset produce volatile returns, making them excellent for long-term investing. Debt funds invest in fixed-income securities like government bonds and corporate bonds. They get interest in addition to any capital gains from the fixed income instruments in which they have invested.
Long-term aims are best served by equity funds, whereas short- to medium-term ones are best served by debt funds. Your risk appetite must also be addressed, but if you are young, equities funds are the best option. To keep up with inflation, retirees and senior citizens require exposure to equities funds as well, although at a lower level than younger people “There are numerous considerations to consider before deciding on which mutual fund category to invest in.
The following are the primary factors, as well as the order in which they should be examined, according to Col. Sanjeev Govila (Retd), a SEBI Registered Investment Advisor (RIA) and CEO of Hum Fauji Initiatives, a financial planning firm:
1. Personal risk profile – how much return volatility is acceptable?
2. Future financial needs (goals) For long-term goals (usually 5 years and beyond), equity is the greatest option, while debt should be considered for shorter-term goals.
3. Current market conditions values of the overall market and individual stocks, as well as the interest rate environment, are all significant.
“In general, a mix of the three will determine which equity and loan combination is ideal for a given person. Also, rather than taking a one-size-fits-all approach, one might consider a portfolio approach. In most cases, all portfolios will include equity, debt, and hybrid funds in varying proportions,” says Col. Govila (Retd).
When you’re getting close to your objectives, it’s a good idea to switch from equities to less volatile debt funds. To preserve the accumulated cash, start transferring from equities funds to debt funds three years before your goals. While investing in a mutual fund is less dangerous than investing directly in the stock market, it is not without risk. As a result, be cautious when choosing a mutual fund scheme, especially if you plan to invest for the long term.
Regulated:
If you’re worried about mutual funds being a risky investment, don’t be. They’re entirely safe. Because the SEBI (Securities and Exchange Board of India) and the AMFI oversee and manage mutual funds, no one can steal your money (Association of Mutual Funds in India). Furthermore, similar to a bank’s banking license, the license to run a mutual fund company is provided following due diligence. This safeguards the safety of your mutual fund assets.
Diversified portfolio at low cost:
Diversification reduces the risk of your portfolio by absorbing the negative impacts of a few stocks within it. Individually constructing a diverse portfolio can be costly and time-consuming, but mutual funds have this feature built in. So, even if you invest just Rs.500, you’ll be placing your money into a well-diversified portfolio that spans industries, sectors, and even asset classes.
Professional fund management:
Your money is managed by trained and experienced specialists in mutual funds. They make investment decisions after conducting extensive study and keep a tight eye on their holdings. So all you have to do is invest in a mutual fund scheme based on how much risk you’re willing to take and how long you want to invest.
Mutual fund investments, as you may know, are susceptible to market risks, credit concerns, and interest rate risk. However, with regular reviews and the right investment, this may be readily managed. When your investing horizon is smaller than three years, for example, you can choose debt funds. You can invest in hybrid funds (moderate risk), large-cap equity funds (moderate to high risk), or sectoral funds for periods longer than that (high risk). Another alternative is to invest in mutual funds through a SIP (systematic investment plan), which allows you to invest a specified amount in mutual funds on a regular basis. This will allow you to average your investment costs while also protecting you from excessive market changes. You can simply outsmart inflation and generate decent long-term profits. All of these advantages are available to you if you invest in mutual funds.
ICICI Securities Ltd. is a financial services company based in India ( I-Sec). ICICI Securities Ltd. – ICICI Venture House, Appasaheb Marathe Marg, Mumbai – 400025, India, Tel No: 022 – 2288 2460, 022 – 2288 2470 is I-registered Sec’s office. ARN-0845 is the AMFI registration number. We are mutual fund distributors, and any issues arising from our distribution activities would not be subject to the Exchange’s investor redress or arbitration mechanisms.
Please keep in mind that mutual fund investments are subject to market risks; read all scheme-related papers carefully before investing. I-Sec cannot guarantee that the fund’s goal will be met. Please take note of this. Depending on the circumstances and forces affecting the securities markets, the schemes’ NAV may rise or fall. Information provided herein is not guaranteed to be accurate or representative of future results, and it may not be comparable to other investments. If investors are unsure whether the product is right for them, they should consult their financial advisors.
The information supplied is not meant to be used as the only basis for investment decisions by investors. Investors must make their own investment decisions based on their individual investment objectives, financial situations, and needs.
The preceding information is not intended to be construed as an offer or suggestion to trade or invest. Investors should make their own decisions on the suitability, profitability, and fitness of any product or service mentioned above. I-Sec and its affiliates accept no responsibility for any loss or damage of any kind resulting from activities done in reliance on the information provided.
What is equity fund in SBI?
Your money is invested in equities and equity-related products by SBI Equity Funds. These funds produce higher long-term returns in order to develop wealth. These funds are intended for risk-taking investors with long-term objectives.
Is Fd a debt instrument?
Debt instruments include bonds, debentures, leases, certificates, bills of exchange, and promissory notes. Debt instruments offer stable and higher yields than bank fixed deposits, giving them an advantage. Debt instruments can be either long-term or short-term in length.
Who invests in fund of funds?
Purchasing a mutual fund is similar to having your car’s brakes repaired. Sure, you could conduct your own research, acquire the tools, and fix the automobile (and many people do), but it’s often not just easier but also safer to delegate the task to a professional. Mechanics and mutual funds may have higher fees, but there is nothing wrong with spending a little more for peace of mind.
Some investors may like even more security. They gain the added protection of several money managers and far more diversity than if they bought a single mutual fund that invests in other mutual funds. A fund of funds (FOF) is a type of investment that consists of a collection of mutual fundsbasically, a mutual fund for mutual funds. They are frequently utilized by individuals with limited investable assets, limited ability to diversify, or who are inexperienced with mutual fund selection. In other words, a FOF provides the little guy with the kind of expert management and diversification that has traditionally been reserved for the wealthy. We’ll look at the benefits, drawbacks, and hazards of a FOF in this post.
What is hybrid fund?
A hybrid fund is a form of mutual fund or exchange-traded fund that invests in a variety of assets or asset classes to create a diversified portfolio. A classic example of a hybrid fund is a balanced fund, which typically holds 60% stocks and 40% bonds.
What is liquid fund?
Liquid funds are a type of debt fund that invests in money market securities that pay a short-term fixed rate of interest. Treasury bills, commercial paper, and other underlying securities are examples of underlying securities in a liquid fund’s portfolio.
