1. What are the benefits of investing in Mutual Funds?
Investing in mutual funds has many advantages, including:
🔹 Small Investments, Big Benefits:- You can start investing with a small amount
and still get the benefits of a diverse portfolio spread across different companies.
🔹 Expert Management:- Your money is handled by professional fund managers
who study the market and make smart investment decisions for you.
🔹 Lower Risk Through Diversification:- Instead of investing in just one or two
stocks, a mutual fund invests in many different stocks or bonds, reducing the risk.
🔹 Transparency:- Mutual funds regularly update you on how your investment is
performing and give details about where your money is invested.
🔹 Wide Variety of Choices:- There are different types of mutual funds for different
needs—some are for high returns (with higher risk), and others focus on stable
income. You can choose what suits you best.
🔹 Safety & Regulations:- All mutual funds in India are regulated by SEBI (Securities
and Exchange Board of India), ensuring that your investment is safe and properly
managed.
2. What is NAV?
NAV is the price of one unit of a mutual fund. It tells you how much each unit of the
mutual fund is worth at a given time.
● It is the total value of the fund's investments, after subtracting any expenses or
liabilities, divided by the total number of units held by investors.
● When you buy or sell mutual fund units, the price is based on the NAV.
● For open-ended mutual funds, NAV is updated daily.
● For closed-ended mutual funds, NAV is published at least once a week.
NAV helps investors track the value of their mutual fund investments and decide when to buy
or sell units.
3. Are there any risks involved in investing in Mutual Funds?
Yes, mutual funds do not guarantee returns because their performance depends on
market conditions. Since mutual funds invest in stocks, bonds, and other assets, they
come with certain risks.
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Types of Risks in Mutual Funds:
Market Risk – If the stock or bond market crashes, the value of the mutual fund also
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goes down.
Non-Market Risk – If a particular company in the fund performs poorly, its stock price
may fall, affecting the fund's value. This risk can be reduced by diversification (investing
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in multiple companies).
Interest Rate Risk – When interest rates rise, bond prices fall, which negatively
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affects the mutual fund holding those bonds.
Credit Risk – If a company fails to repay its debt (bonds or loans), the mutual fund
may lose money.
4. What are the different types of Mutual funds?
Mutual funds can be categorized based on their investment objective:
(A) On the basis of Objective
Equity Funds (Growth Funds)
Invest in stocks (equities) to grow your money over time.
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Investors looking for long-term capital growth.
Types of Equity Funds:
● Diversified Funds – Invest in stocks from different industries, reducing risk.
● Sector Funds – Focus on stocks from a specific sector (e.g., technology, banking).
● Index Funds – Invest in stocks that match a stock market index like Nifty 50.
● Tax-Saving Funds (ELSS) – Help you save tax under Income Tax Act.
Debt/Income Funds
Invest in bonds, debentures, and government securities to offer steady returns.
Investors who prefer lower risk and a fixed income over time.
Liquid Funds (Money Market Funds)
Invest in short-term money market instruments, offering quick liquidity.
Businesses or individuals who need a safe place to park money for a short time (even
for a day!).
Gilt Funds
Invest in government-backed securities, ensuring safety.
Investors who want zero credit risk and steady returns.
Balanced Funds
Invest in both stocks (equity) and bonds (debt) for a balanced approach.
Investors who want moderate risk with steady growth.
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(B)On the basis of Flexibility
1. Open-Ended Funds
● You can buy and sell units anytime—there's no fixed maturity date.
The price changes daily based on the Net Asset Value (NAV).
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Investors who want flexibility and liquidity (easy to withdraw money when needed).
2. Close-Ended Funds
● You can only invest during the initial offering (IPO). After that, no new investments or
exits are allowed until the maturity date.
These funds have a fixed maturity period, and units are listed on stock exchanges for
trading.
Investors who are okay with locking their money for a fixed time and want to trade on
stock exchanges if needed.
5. What are the different investment plans that Mutual Funds offer?
Mutual funds offer different investment plans to suit various financial goals. These plans
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determine how your returns are managed.
1. Growth Plan
Any returns or profits are reinvested instead of being paid out.
Investors looking for long-term capital growth instead of regular income.
If your investment grows over time, you only make money when you sell your units at a
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higher price.
2. Dividend Plan
The fund regularly distributes profits as dividends to investors.
Investors who want steady income from their investment.
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If the fund earns a profit, you receive a dividend payout instead of reinvesting.
3. Dividend Reinvestment Plan
Instead of receiving dividend payouts in cash, they are automatically reinvested to buy
more units of the fund.
Investors who want compounding growth but still prefer the dividend structure.
If a fund declares a dividend, you get extra units instead of cash.
6. What is a Fund Offer Document?
A Fund Offer Document is a detailed guide that provides all the important information
about a mutual fund scheme before you invest in it. It helps investors understand the
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risks, objectives, and rules of the fund.
Investment objectives – What the fund aims to achieve (e.g., growth, income, or
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stability).
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Risk factors – The possible risks involved in investing in the fund.
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Expenses – Any charges or fees you may have to pay.
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Fund structure – How the fund is organized and managed.
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Investment process – How and where your money will be invested.
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Tax details – The tax rules that apply to your investments.
Financial information – Past performance and other financial details.
Importance
✔ Helps you make an informed decision before investing.
✔ Ensures transparency so you know exactly where your money is going.
✔ Required by SEBI (Securities and Exchange Board of India) to protect investors.
7. What is Active Fund Management?
Active Fund Management means that a fund manager makes investment decisions
actively by choosing which stocks, bonds, or assets to buy and sell. The manager relies
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on research, market analysis, and trends to try to maximize returns for investors.
The fund manager studies market trends and company performance before
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deciding where to invest.
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The fund buys and sells investments regularly based on market conditions.
The goal is to earn better returns than the overall market.
Two Investment Styles in Active Fund Management
1️⃣ Growth Investing – The fund manager invests in fast-growing companies that are
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expected to increase in value over time.
Example: Investing in technology startups or companies with strong future potential.
2️⃣ Value Investing – The fund manager looks for undervalued companies (those that
are priced lower than their real worth) and waits for the market to recognize their true
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value.
Example: Buying stocks of companies that are temporarily out of favor but have
strong fundamentals.
✔ Potential for higher returns (if the fund manager makes the right choices).
✔ Flexibility to adjust investments based on market trends.
✔ Expert decision-making by professional fund managers
8. What is Passive Fund Management?
Passive Fund Management is an investment strategy where the fund does not actively
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pick stocks but instead follows a market index, such as the Nifty 50 or Sensex.
Instead of a fund manager selecting stocks, the fund automatically invests in the
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same stocks as a specific index.
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The goal is not to beat the market, but to match the market’s performance.
These funds are called Index Funds.
✔ Less risk – No human decision-making errors.
✔ Lower cost – Since the fund is not actively managed, the fees are lower.
✔ Steady returns – The fund’s performance is similar to the overall market.
9. What is an ETF?
An Exchange-Traded Fund (ETF) is like a mutual fund, but it trades on the stock
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exchange like a stock.
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An ETF is a basket of stocks that follows a market index like Nifty 50 or Sensex.
Unlike mutual funds, which are bought or sold at the end of the day, ETF prices
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change throughout the day like stocks.
You can buy or sell ETFs anytime during market hours.
✔ Diversification – Invest in multiple stocks at once.
✔ Lower Cost – Expense fees are lower than mutual funds.
✔ Flexibility – You can trade them just like stocks (buy/sell anytime).
✔ Transparency – ETF holdings are publicly available.
