All that You need to know about Mutual Funds in India

Mutual Funds: An Overview

Mutual Fund stands for a pool of shared funds from multiple investors wherein collected corpus is invested in shares of listed companies, government bonds, or corporate bonds. They can also be short-term money-market instruments or a combination of securities or assets. By investing in Mutual Funds in India, an investor can grow a portfolio of stocks, bonds or securities. 

A fund manager is responsible for the management of investments in a mutual fund. Depending upon the discretion of the AMC, there can be more than one fund manager who manages the fund on a day-to-day basis.

High Performing Funds

In this list of funds, CRISIL has given a 4+star rating. These funds have been selected as high-performing funds after sorting 1Y returns upon the investment of Rs 100.

1. Equity Funds

   Large Cap Funds	Crisil Rank	AUM (Cr)	1Y	3Y
   Tata Large Cap Fund- Direct (G)	4*	101.50	51.60%	14.10%
   IDBI India Top 100 Equity- Direct (G)	4*	19.30	50.80%	16.10%
   IDBI India Top 100 Equity Fund (G)	4*	397.87	49.10%	14.60%
   CR Bluechip Equity Fund- D (G)	5*	431.65	48.10%	18.90%
   Edelweiss Large Cap- Direct (G)	4*	32.9	47.40	14.10%

    

   Multi-Cap Funds	Crisil Rank	AUM(Cr)	1Y	3Y
   UTI Flexi Cap Fund-DP-(G)	5*	1,860.22	65.90%	19.20%
   UTI Flexi Cap Fund-RP-(G)	5*	14,032.75	64.70%	18.50%
   DSP Flexi Cap Fund-DP-(G)	4*	729.87	59.10%	19.30%
   Union Equity Fund-Direct (G)	4*	16.57	58.60%	17.80%
   DSP Flexi Cap Fund-RP-(G)	4*	4,142.23	57.50%	18.20%

   

   Small-Cap Funds	Crisil rank	AUM (Cr)	1Y	3Y
   Union SCF-DP (G)	4*	15.71	104.40%	22.00%
   Union SCF-RP (G)	4*	402.49	102.80%	21.20%
   Axis Small Cap Fund-Direct (G)	5*	1,529.00	87.70%	27.80%
   SBI Small Cap Fund-D (G)	4*	2,317.48	87.60%	23.40%
   SBI Small Cap Fund (G)	4*	4,827.73	85.60%	22.00%

2. Debt Mutual Funds

   Long Duration Funds	Crisil Rank	AUM (Cr)	1Y	3Y
   Tata Income Fund-D (G)	4*	9.95	4.30%	9.10%
   IDFC Bond Fund-LTP (G)	5*	83.27	2.50%	9.90%
   IDFC Bond Fund- LTP (G)	5*	611.28	1.90%	9.30%
   Dynamic Bond Fund	Crisil Rank	AUM (Cr)	1Y	3Y
   Axis Dynamic Bond Fund-Direct (G)	4*	905.90	3.80%	10.30%
   Kotak Dynamic Bond Fund (G)	4*	1,528.11	3.70%	9.50%
   Axis Dynamic Bond Fund (G)	4*	617.86	3.30%	9.60%
   IDFC Dynamic Bond- Direct (G)	5*	1,111.94	3.00%	10.60%
   SBI Dynamic Bond Fund- Direct (G)	4*	8633.16	2.90%	9.90%

   

   Short Duration Funds	Crisil Rank	AUM (Cr)	1Y	3Y
   Axis Short Term Fund- Direct (G)	4*	9,430.67	5.30%	9.10%
   IDFC Bond Fund-STP-Direct(G)	4*	5,872.72	4.60%	8.80%
   Axis Short Term Fund (G)	4*	4,701.30	4.50%	8.30%
   Mirae Asset STF- Direct (G)	5*	212.03	4.50%	8.30%
   Tata Short Term Bond-Direct (G)	4*	1,966.64	4.40%	6.60%

3. Hybrid Mutual Funds

   Aggressive Hybrid Fund	Crisil Rank	AUM (Cr)	1Y	3Y
   DSP Equity & Bond Fund- Regular (G)	4*	5,979.61	42.90%	15.00%
   CR Equity Hybrid Fund-DP-(G)	5*	227.30	39.70%	16.20%
   CR Equity Hybrid Fund-RP-(G)	5*	4,312.56	38.10%	14.80%
   SBI Equity Hybrid Fund-D (G)	5*	2,219.27	38.10%	14.50%
   SBI Equity Hybrid Fund (G)	5*	34,653.01	37.10%	13.70%

Types of Mutual Funds

To get the best benefits from mutual funds in India, customers must understand the features and characteristics of the mutual funds. 

Based on asset class category, mutual funds are three types:

1. Equity Mutual Funds

   Investors like to choose this investment mode because it gives inflation-beating returns. However, these funds come with a higher risk of being subject to market fluctuations. These mutual funds can be classified as:

   • Market Capitalisation: Large-cap, Mid-cap, Small-cap or Multi-cap funds.
   • Sectors: Infrastructure, banking, Consumer Goods, etc.
   • Tax saving: ELSS

2. Debt Mutual Funds

   These funds bring stability to the portfolio and are considered a steadfast investment channel with 65% of its portfolio in debt securities. In comparison to Equity funds, it has a relatively lower risk element compared to equity funds. 

   Some classifications of debt funds are:

   • Short-term, Ultra short-term, Mid-term, Long-term funds
   • Corporate bond Funds
   • Gift fund
   • Liquid Fund

3. Hybrid Mutual fund

   This type of fund invests in a mix of equities and fixed income securities so that investors could have a portfolio diversification with different risk profiles. They provide investors with a steady income and capital growth in the long run. 

   Hybrid mutual funds are classified as:

   • Equity-oriented Hybrid Funds: These funds invest 65% or more of their portfolio in equities or equity-related instruments.
   • Debt-oriented Hybrid Funds: These funds invest 65% or less in fixed income instruments like treasury bills and government securities.
   • Monthly Income Plans
   • Arbitrage funds

Reasons to Invest in Mutual funds

Investing in Mutual funds helps Canadian NRI investors manage a diverse professional portfolio at a reasonable cost. It also enables them to benefit from the advantages availed by large institutional investors. These are the reasons investors choose Mutual funds for investment:

1. Diversified investment options

   The NRI investors in Canada can choose within broad categories according to their investment plans, financial goals, and risk appetite. For example, large-cap equity funds are less volatile but come with lower and stable returns. 

   In contrast, mid-cap or small-cap equity funds may fluctuate frequently but give higher returns in the long term. When invested in Corporate bonds, debt funds will give higher returns but gift funds will bring higher risk.  

2. High Liquidity

   Most mutual funds in India are open-ended, which means the investor can buy or sell them at any time. The fund's NAV or the net asset value determines the total redeemable or buyable value on that particular day.

3. Investment through SIP

   According to their convenience, the investor can make investments in smaller amounts through SIP (Systematic Investment Plan) monthly, quarterly or bi-monthly. The mutual fund units acquisition cost can be lower with the implementation of rupee cost averaging.

4. Tax benefit

   An ELSS or Equity-Linked Saving Scheme investment reduces the taxable income up to Rs 1.5 lakhs a year under Section 80C of Income Tax. The lock-in period is three years, which is the shortest of all tax-saving instruments.

5. Diverse Portfolio

   The investor builds a diverse portfolio by investing in various shares or fixed income instruments. It helps reduce the risk of concentration, which means if one asset class does not perform, the other will compensate. It gives stability to the investor’s profile.

6. Cost-effective

   Investment in mutual funds in India is cost-effective as Asset Management Companies (AMCs) put a small amount (ranging between 0.5% to 1.5%) as the expense ratio on the customers. The expense ratio should be under 2.5% as guided by the Securities and Exchange Board of India (SEBI).  

How to Save Tax Through Mutual Funds?

When choosing the tax-saving options, the NRI investors in Canada need to understand how the returns would be taxed. Equity-linked saving schemes (ELSS) have two differentiating features- A limit of 1.5 lakh investment amount in them qualifies for tax benefits under Section 80C,  Income Tax Act 1961. 

There is a lock-in period of 3 years on the amount invested. Mutual funds can provide returns in the range of 12% to 15%.

Effective from April 1, 2020, any equity mutual fund scheme’s dividends in the hands of an investor are taxable. The investor investing in ELSS will get better tax-effective returns if they choose dividend over growth option. The Investment in ELSS saves tax and generates tax-exempt income.

Things to Consider Before Investing in Mutual funds

• Have an investment goal
• Use SIP Calculator to know an estimate of the returns
• Consult a financial advisor
• Be aware that they may lose money to market fluctuations

Eligibility for Investment in Mutual Funds

Canadian NRI investors from any age group can invest in mutual funds in India. Young investors, who aim for capital growth in the long term, can invest in equity schemes. Middle-aged investors can invest savings between income funds and equity funds to achieve income and capital growth. Older investors can consider debt income schemes that will procure a steady income. 

What is the Right Time To Invest in Mutual Funds?

Investing in a Mutual fund has many beneficial aspects like fund manager managing the pool and selecting the right securities and assets. Investment through SIP is also beneficial as the investor can take advantage of market volatility. The investor does not need to look for a particular time to invest in Mutual funds.