At Poorna Wealth we believe informed investors make better financial decisions.
What is a Mutual Fund?
A mutual fund is a Trust which pools money from investors and invests them in different financial securities like shares, bonds etc.
Advantages of Mutual Funds over other Asset Classes Like real estate, gold etc.
- Professional Management: Mutual Funds are managed by expert Fund Managers.
- Diversification: Mutual Fund invests in multiple securities there by reducing the risk of dependence on few stocks.
- Economies of Scale: Since Mutual Funds do transactions in large numbers the cost per unit is very less which the investors enjoy.
- Liquidity: Immediate access to money compared to other asset classes.
- Transparency and Regulation: In India Mutual Funds are totally transparent and regulated by SEBI.
- Tax Efficiency: Mutual Funds are more tax efficient than most other investment products.
- Flexibility: SIP, STP, SWP, Switch, Lumpsum etc.
Key Parties in a Mutual Fund Structure
Sponsor, Trustees, AMC, RTA, Custodian, Distributors, Investors
Simple Way to Understand
| Role | Who |
|---|---|
| Investors money is kept in a locker | Trust |
| Manager invests and manages it | AMC |
| Guardian protecting investors | Trustee |
| Safeguard Assets | Custodian |
| Distributors | POORNA WEALTH – Helps investors |
Types of Mutual Funds
5 broad categories:
- Equity Schemes (Largecap, Midcap, Flexicap, etc.)
- Debt Schemes (Liquid funds, Corporate bond etc.)
- Hybrid Schemes (Conservative, Aggressive etc.)
- Solution Oriented
- Other Schemes
Types of Investments
SIP (Systematic Investment Plan)
Best Suited For:
- Salaried individuals with regular income.
- Helps in rupee cost averaging.
- Inculcates disciplined investing habit.
- Less pressure during volatile markets. Can buy more units during market fall.
- Ideal for long term goals (Retirement, Children Education etc.)
Lumpsum
Best Suited For:
- Investing when one has funds as a result of bonus, property sale, business surplus etc.
- Works best when market is undervalued.
- Full capital takes advantage of compounding from day one.
STP (Systematic Transfer Plan)
Best Suited When:
- Markets are uncertain or sideways.
- Helps in deploying lumpsum amount safely by initially parking it in a liquid fund and transferring into equities over regular intervals.
- Ensures average entry into equity.
SWP (Systematic Withdrawal Plan)
Best Suited For:
- Retirees who need regular cash flow.
- Withdraw a fixed amount regularly from Mutual Fund corpus.
- Helps in profit taking and continuing compounding by staying invested.
- Can create monthly income scheme without redeeming the entire capital.
- Tax efficient as only capital gains portion is taxed.