What is Mutual Fund ?

A mutual fund is a collection of stocks, bonds, or other securities owned by a group of investors and managed by a professional investment company. For an individual investor to have a diversified portfolio is difficult. But you can approach to mutual fund advisor and can invest into shares. Mutual funds have become very popular since they make individual investors invest in equity and debt securities easy.

When investors invest a particular amount of mutual funds, he becomes the unitholder of corresponding units. In turn, mutual funds invest unit holders money in stocks, bonds or other securities that earn interest or dividend. This money is distributed to unitholders.

If the fund gets money by selling some stocks at a higher price the unitholders also are liable to get capital gains. A mutual fund is quite simply a collection of stocks, bonds, or other securities owned by a group of investors and managed by a professional investment company. Thus the mutual funds are not the depositing instrument that has the guarantee of getting a certain amount but it is like any other securities where the investor can have capital gains or loss.

Why to invest in Mutual Funds ?


Professionally Managed

Mutual funds are professionally managed by fund managers, whose every day job is to track the markets and manage investments.


“Don’t put all your eggs in one basket”. This is the premise of diversification. It means spreading your investments across asset classes and stocks, to reduce your risk.

Higher Returns

Mutual funds provide the right avenue for investing in a variety of market-linked instruments, which have time and again delivered superior returns


Mutual funds, on the other hand, broadly come with less, if not no, lock-in periods. Most funds do not have a lock-in period and give you the flexibility to redeem your money when you need it.


And finally, investing in mutual funds is now a piece of cake. The whole process is offered online by many players in the industry. Starting a SIP or making an investment can be done in a matter of few clicks.

Disciplined Investing

Habits are hard to break. Which is why we are advised to inculcate good habits. And what better habit could there be, than investing for your secure future?

History of Mutual Funds

  • The origin of mutual fund industry in India is with the introduction of the concept of a mutual fund by UTI in the year 1963. Though the growth was slow, it accelerated from the year 1987 when non-UTI players entered the industry.
  • In the past decade, Indian mutual fund industry had seen a dramatic improvement, both quality wise as well as quantity wise. Before the monopoly of the market had seen an ending phase, the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family rose the AUM to Rs. 470 bn in March 1993 and till April 2004, it reached the height of 1,540 bn.
  • Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry.

Importance of Asset Allocation

First of all, we must know What Asset Allocation Is? It is an investment portfolio technique which helps in diversification by investing in different asset classes such as cash, bonds, stocks etc. thus ensuring to balance risk in case one asset class increases while other decreases.



1) Risk vs. Return
Every investor must take into aspect the concept of risk-return trade-off which basically means that potential return increases with an increase in risk. According to this risk-return trade-off principle, invested money can give higher profits, only if the investor is willing to accept that losses too can happen and they are a part of the market.

2) Don’t Rely Solely on Financial Software or Planner Sheets
Though the financial planning software and survey sheets designed by financial advisors can be beneficial, one must not rely solely on that as some of these worksheets are based on a set of simple questions that don’t match with every individual financial goal. Also, some of the surveys don’t take into account other important information such as whether or not you are a parent, retiree, spouse etc. So investors must be extra cautious and must do thorough research before relying on any such surveys and software.

3) Determine Your Long and Short Term Goals
An asset allocation plan must be prepared considering both the long term and short term goals of an investor in mind. It must thus be prepared according to the investors’ age, his/her risk-taking ability and thus every investor long and short-term goal plan will be different and must be taken into account.

4) Time is Your Best Friend
It is always said that investing early helps you take advantage of time value of money and compounding. Hence, it is advised by the financial planners to invest for long-term whether in mutual funds or direct in stock markets as in long run one will definitely higher returns.

5) Keep a Check on Your Portfolio
Once you have determined the right mix of stocks, bonds, and other investments, then it is the time to implement it. One needs to know what all is included in your current portfolio and you must keep a check on it and must remain in touch with your financial planner so that you can let him know what changes you need to make in your portfolio from time to time according to the conditions in the market.

How to Invest In Mutual Fund ?

First, let us understand What Exactly Mutual Funds Are. These are pools of funds which are collected from investors and managed by an asset management company on their behalf for investing in different instruments such as stocks, bonds, Govt. securities and other asset classes with a hope of providing better returns to investors by diversifying their risk by investing in different asset classes.

Who can invest in Mutual Funds?

Following are the people which can invest in mutual funds:-

  1. People living in India that is Indian residents.
  2. People not living in India that is Non-resident Indians (NRI)
  3. All people who are of Indian Origin (POI)
  4. ALL Indian public and private sector companies.
  5. For minors, their parents or guardians can invest on their behalf.
  6. Hindu Undivided Family(HUF)
  7. Sole Proprietorship Firms that are firms with a single owner.
  8. Cooperative societies
  9. Partnerships firms
  10. Charitable or Religious Trusts
  11. Trustee and Asset Management Company
  12. Registered Societies
  13. Air force, navy and army Institutions
  14. Scientific and/or industrial research organizations

Documents Required To Invest in Mutual Fund

First of all, every person needs to fill a Know your customer application form (KYC). Along with that following documents are required by different parties involved:-

1) For IndividualProof of Identity
The first and foremost thing for an individual investor is the proof of identity. Following things can be included in it:

  • Photo PAN Card
  • In case of Non-Photo PAN Card in addition to copy of PAN Card, any one of the following can be included
  • Passport copy/Driving License/ Voter ID /Bank Photo Pass Book.

Proof of Address (any one of the following):

  • Latest Telephone Bill, which could be Landline/Mobile and it, should not be more than 3 months prior to the date of application.
  • Latest Electricity Bill (not more than 3 months prior to the date of application).
  • Passport copy
  • Bank Account Statement (not more than 3 months prior to the date of application).
  • Latest Demat Account statement (not more than 3 months prior to the date of application).
  • Voter ID.
  • Driving License.
  • Ration Card.
  • Rent Agreement.

2) For Hindu Undivided Family (HUF)

  • Units can only be held in the name of Karta on behalf of the HUF
  • For proof of identity Copy of pan Card is a must.

Proof of address (HUF)

  • Latest Bank Passbook (not more than 3 months prior to the date of application).
  • Bank account statement (not more than 3 months prior to the date of application)…

3) Non-individuals (PAN Mandatory) Companies / Bodies Corporate (Certified copy of the following):

  • Certificate of incorporation.
  • Memorandum & Articles of Association that is MOA and AOA.
  • Approval of the Board of Directors (BOD) authorizing investment in mutual funds.
  • Power of Attorney(POA) granted to its managers, officers or employees to transact business on its behalf

4) Partnership firms (Certified copy of the following):

  • Certificates of Registration, in case of registered Partnership Firms.
  • Any other officially valid documents in respect of holding a power of attorney to transact.

5) Trusts, foundations, NGO’s Charitable Bodies, Clubs/Mutual Fund Schemes (Certified copy of the following):

  • Certificate of Registration, in case of registered Trusts.
  • Any other valid documents in respect of holding a power of attorney to transact
  • Offer Document of the Mutual Fund Scheme.
  • Certificate of Registration, in case of registered Trusts.
  • Any other valid documents in respect of holding a power of attorney to transact.
  • Offer Document of the Mutual Fund Scheme.

How to read Mutual Fund Documents ?

All the advertisements about Mutual Fund Investments give a disclaimer, in the end, saying “please read all scheme related documents carefully before investing “.

It is not rare that new investors or such investors who do not possess much knowledge about MFs end up.

These documents contain long pages with a lot of technical languages. Reading this is a very difficult &tedious taste for beginners, Therefore, bankers or financial agents & advisors are approached to help investors invest faithfully.

Important things to read in an offer document.

1) Date of issue

To see that you have received an up to date & they should be updated on an annual basis.

2) Investment objectives

The goal of each fund should be clearly mentioned, all of its objectives should match with the personal objectives  of  the investors.

3) Investment Policies

All the securities or stocks the amount will be invested/ reinvested in should be mentioned in the OD.

4) Risk factors

 All the risks including with the investment & the contingencies should before with mentioned in the OD.

5) Past Performance Data

Any company can attract new& potential investors by showing them past performance & giving them an  assurance through actual data & growth potential.

6) Fees & Expenses

The entry fee, exit fee, interests, annual exports services costs, etc. Involved with the MF is in the OD.

7) Tax Benefits

All the subsidies, tax reliefs or returns & other benefits the MF carries is mentioned & should be read carefully.

How to pick mutual fund?

Some of the main points which need to be kept in mind are as follows: Identifying Goals and Risk Tolerance, Fund Type, Performance Ranking, Charges, and Fees, Evaluating Managers Past Performance.

1) Identifying Goals and Risk Tolerance

Before investing in any fund, the investor must be crystal clear what his long-term goal and short-term goals are and in how much time horizon he/she plans to achieve it. Also, the risk-taking ability of the particular investor must also be taken into account.

2) Fund Type

It basically depends on whether an investor wants to invest money for a long-term need and if he can handle a fair amount of risk and volatility too then he/she can go for an equity fund, but if he wants to invest for a short period, then debt funds would be better suited.

3) Performance Ranking

You must find out the quarterly ranking which will show how the fund has formed quarter on quarter basis among its peer group. So one may select the scheme which has remained in top quarterly most of the time and one can find these rankings from the fact sheets of various AMC’s and also on some mutual fund research websites.

4) Charges and Fees

The investor must take a note of all fees and charges being levied for by the fund managers for providing their service. One can look for management expense ratio. It is simply the total percentage of fund assets that are being charged to cover fund expenses. The higher the ratio, the lower would be the investors return and vice-versa.

5) Evaluating Managers Past Performance

Investors should research about funds past results and seek answers to questions such as:-
1) Did the fund manager deliver results which were consistent with general market returns?
2) Did the returns vary dramatically throughout the year?

It will help an investor in knowing how a fund manager performs under critical situations and what historically has been the trend in terms of turnover and return.

Why do you require mutual fund advisor?

  1. Educating the investor(s)
  2. Evaluating risk-taking capacity
  3. Analyzing investment options
  4. Devising the right investment strategy
  5. Helping investors diversify their portfolio
  6. Record-keeping

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