When we think of investing, the options we have are – Fixed Deposits, PPF, EPF, Bonds, Stock Market, and Mutual Funds. But most of them have such low returns that it is not worth investing in them; the Exception is the stock market and mutual fund. Investing in the stock market requires you to do enough research, and to do this research, you need to have enough knowledge about the stock market, but most of us don’t have that much expertise or the time to do that. In this situation, mutual funds are the ideal place to invest. How? Let’s take a look.
When Bhandudatta proposed to his girlfriend Minti, she told him that a house had to be in his name before marriage. They would get married only if he could buy the house, and for that, he gave Bharadatta only five years. Then Bhandudatta started looking at the home, made a choice, and learned that after five years, the house would be sold, and at that time, the house price would be Rs.1,000. But Bharadatta has 500 rupees. Bhandudatta was in great trouble. What can be done? Then one of his friends advised him, “Brother Bhiridatt, you should buy the shares of a good company that gives an average annual return of 15%. Then your investment of Rs. 500 will easily reach Rs. 1,000.”
Bharadatta has got heaven in his hand. Who is stopping his marriage now? But immediately, Bhandudatta’s face showed deep worry. He felt that he should buy the shares of a good company, but he understands how any company’s claims are good; He needs to have a lot of knowledge about these things, but he doesn’t have that. Seeing Bhandudatta’s worried face, his friend understood Bhandudatta’s mind. He said, “Hey friend, why are you thinking? I will tell you which company’s shares you should buy. The friend also said. He said, ‘Brother, you should buy the shares of Reliance.'” Alternatively, Upstox requested that he open a Demat account. Then Bhandudatta also opened an account in Zerodha, and when he saw that the price of one share of Reliance was Rs. 2500, but he had only Rs. 500 then, he got into trouble. In this situation, Bhandudatta learned about mutual funds after much searching for mutual Learned a lot about funds.
What is a mutual fund?
A mutual fund comprises many investors who invest in the stock market, debt funds (Debt Fund), gold, bonds, etc. In this fund, many investors deposit money together. Mutual, The fund’s size depends on the fund’s size or how much money is deposited in that mutual fund. A mutual fund, for example, can be worth 100 crores, and a mutual fund can be worth Rs. The fund could be worth another 5,000 crores.
How do mutual funds work?
To understand this, we will listen to Bharudatta again. When Bhandudatta learned about mutual funds, he downloaded and registered, and installed the Ind Money application from Google Playstore. Then went to the mutual fund option of that application and deposited 500 rupees in HDFC Index Fund Nifty 50 Plan Direct Plan mutual fund. This mutual fund company gave Bhandudatta three NAV for depositing $500.
What is NAV in Mutual Funds?
NAV or Net Asset Value is a unit. It is very similar to the number of shares. Suppose you buy a share of a company whose price is Rs.500. It means you get a share of that company. In the case of mutual funds, you can NAVI like in the story by depositing 500 rupees and receiving 3 NAV because the current value of one NAV of that mutual fund is 166.28 rupees; Bhandudatta received 3 NAVI as per (500/166.28).
Simply put, your NAV from a mutual fund is 1 unit = (how much money you are investing / the mutual fund’s current NAV value).
It is also interpreted in another way. Assume you want to put Rs 1,000 into a mutual fund. Currently, the NAV of that mutual fund is Rs.50. This means that at the NAV of this mutual fund, you can purchase (1000 / 50) = 20 units for Rs 1,000.
How to earn money from mutual funds?
We will return to the story to find out. Bhandadatta Mutual Fund purchased and retained the company’s three NAVs. This mutual fund has given a return of 14.14% to date. If this mutual fund returns at an average rate of 14% every year for the next five years, then the value of 1 NAV of this company will increase from 166.28 to 365 after five years. Meanwhile, Bhandudatta has 3 Navis. Then, if Bhandudatta sells his three NAVs, he will receive approximately 1,100 Tk. In other words, his money will double in just five years.
Types of mutual funds?
There are different types of mutual funds. Mutual funds can be divided into two categories based on where the mutual fund is investing –
1) Equity mutual funds
2) Debt mutual funds
3) Hybrid mutual funds
Equity Mutual funds invest most of their capital (Capital) in the Equity end of the stock market. Equity mutual funds can again be divided into four categories depending on the type of shares invested –
- a) Large Cap Mutual Fund
- b) Mid Cap Mutual Fund
- c) Small Cap Mutual Fund
- d) Multi Cap Mutual Fund
Large Cap Mutual Fund has its capital. The stock market invests in large companies in terms of market capitalization.
Mid Cap Mutual Fund invests their capital in mid-sized companies in terms of stock market capitalization.
Small Cap Mutual Fund invests their capital in companies that are small in terms of the market capitalization of the stock market.
Multi Cap Mutual Fund invests its capital in a mix of large, medium, and small listed companies in the stock market.
Debt Mutual Funds invest in places where a fixed return is available. For example, in government bonds, debentures, etc.
Hybrid Mutual Fund invests some capital in Equity or Shares and some in Government Bonds, Debentures, etc.
Again there are some tax-exempt mutual funds. This type of mutual fund is called Equity Linked Savings Scheme or ELSS.
There is another type of mutual fund called an index mutual fund. These funds are directly linked to stock market indices, i.e. Nifty and Sensex. That is, the rate at which Niti or Sensex shows growth; this fund also grows at the same rate.
Tax on Mutual Funds
You must pay tax on the profit you earn by selling mutual funds. Profits made on Equity Mutual Funds and Hybrid Mutual Funds are taxed at 10% and 15%. If you sell these two types of mutual funds within one year, you get taxed at the rate of 15% on your profit, and if you sell after one year, you get taxed at the rate of 10%. But this tax has to be paid only if your profit is more than 1 lakh rupees.
On the other hand, if you sell Debt Mutual Fund, you don’t have to pay any tax at the rate mentioned above. In this case, your profit is included in your income, and tax is payable according to the bracket in which you fall.
How to Invest in Mutual Funds
You can invest in mutual funds online from your mobile at home. A perfect mobile application for this is IND Money l through this application, you can invest in mutual funds very quickly. Also, many mutual funds are registered in this application.