Mutual Fund Decoded: Your Step-by-Step Beginner’s Guide to Smart Investment in 2023

What Is A Mutual Fund ?

A Mutual Fund Is A Type Of Investment , Where Funds From Many Investors Are Pooled Together To Invest In A Specific Portfolio Of Stocks, Bonds, Or Other Securities. It Is  Mainly Managed By Professional Fund Managers Who Make Investment Decisions On Behalf Of The Investors. The Profits Or Loss, As Well As The Risks, Are Shared Among The Investors Based On Their Contributions To The Fund.

How Do Mutual Funds Work?

Mutual Funds Work By Putting Together Funds From Multiple Investors And Using That Collective Capital To Invest In A Specified Portfolio Of Assets, Like Stocks, Bonds, Or Other Securities. A Professional Fund Manager Is Responsible For Making Investment Decisions .

When We Invest In A Mutual Fund, We Purchase The Shares & When We Sell Shares, We Receive The Current Nav Value For Our Shares At The End Of Each Trading Day. The Value Of These Shares, Known As NET ASSET VALUE (NAV), Fluctuates Based On The Performance Of That Underlying Assets. If The Value Of The Securities Or Shares Increases, The Nav Per Shares Also Rises, And Vice Versa.

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Types Of Mutual Funds 

There Are Several Types Of Mutual Funds, Each Designed To For Different Investment Goals And Risk Tolerances. 

Here Are Some Common Types:

Equity Funds:

 These Funds Primarily Invest In Stocks & Aims For Long-term Capital Appreciation. They Can Focus On Specific Sectors, Regions, Or Company Sizes (Large-cap, Mid-cap, Small-cap).

  • Objective: Long-term Capital Appreciation By Investing In Stocks.
  • Benefits: Potential For High Returns, Diversification Across Companies And Industries, Professional Management.

Best Performing Equity Mutual Funds

Fund Name5-year Return (%)*
Quant Small Cap Fund Direct Plan-Growth29.15%
Quant Tax Plan Direct-Growth25.46%
Quant Infrastructure Fund Direct-Growth25.33%
Axis Small Cap Fund Direct-Growth23.84%
Quant Mid Cap Fund Direct-Growth23.74%
Quant Active Fund Direct-Growth23.43%
Nippon India Small Cap Fund Direct- Growth23.25%
Kotak Small Cap Fund Direct-Growth22.61%

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Bond Funds

Bond Funds Invest In Various Types Of Bonds, Like Government, Corporate, Or Municipal Bonds. They Often Have Lower Risk Compared To Equity Funds.

  • Objective: Income Generation And Capital Preservation Through Investments In Bonds.
  • Benefits: Lower Risk Compared To Stocks, Regular Interest Income, Diversification In Fixed-income Securities.

Best Performing Debt Mutual Funds

Fund Name5-year Return (%)*
DSP Government Securities Direct Plan-Growth8.87%
Nippon India Nivesh Lakshya Fund Direct – Growth8.86%
Aditya Birla Sun Life Medium Term Direct Plan-Growth8.75%
SBI Magnum Gilt Fund Direct-Growth8.69%
Bandhan Government Securities Investment Plan Direct-Growth8.65%
Bandhan Government Securities Fund Constant Maturity Direct-Growth8.57%
Kotak Gilt Investment Direct-Growth8.54%
ICICI Prudential Constant Maturity Gilt Fund Direct-Growth8.53%
ICICI Prudential Gilt Fund Direct Plan-Growth8.51%
ICICI Prudential All Seasons Bond Fund Direct Plan-Growth8.46%

Money Market Funds

These Funds Invest In Short-term, Low-risk Securities Like Treasury Bills And Commercial Paper And Provide Stable Returns.

  • Objective: Preservation Of Capital And Liquidity.
  • Benefits: Very Low Risk, Stable Returns, Suitable For Short-term Cash Management.

Best Performing Money Market Mutual Funds

Fund Name3-Year Return (%)5-Year Return (%)
Edelweiss Money Market Fund Direct-Growth4.65%7.55%
Aditya Birla Sun Life Money Manager Fund Direct-Growth5.16%6.40%
HDFC Money Market Fund Direct Plan-Growth5.16%6.36%
SBI Savings Fund Direct-Growth5.10%6.28%
Nippon India Money Market Fund Direct-Growth5.12%6.25%

Index Funds:

 Index Funds Track A Specific Market Index, Such As The S&P 500. They Aim To Replicate The Performance Of The Index And Tend To Have Lower Fees.

  • Objective: Replicate The Performance Of A Specific Market Index.
  • Benefits: Low Expense Ratios, Broad Market Exposure, Consistent Returns In Line With The Index.

Sector Funds:

 These Funds Focus On Specific Sectors Of The Economy, Like Technology, Energy, Or Healthcare. They Can Offer Targeted Exposure But Come With Higher Risks.

  • Objective: Capitalize On Growth Potential Within A Specific Sector.

Benefits: Targeted Exposure To A Particular Industry, Potential For Higher Returns If The Sector Performs Well.

Best Performing Sector Mutual Funds

Fund Name3-Year Return (%)5-Year Return (%)
ICICI Prudential Technology Direct Plan-Growth29.10%21.75%
SBI Technology Opportunities Fund Direct-Growth28.60%20.82%
Tata Digital India Fund Direct-Growth28.51%20.45%
Aditya Birla Sun Life Digital India Fund Direct-Growth28.10%21.95%
Franklin India Technology Fund Direct -Growth21.95%18.77%

Balanced Funds

Also Known As Asset Allocation Funds, They Invest In A Mix Of Stocks, Bonds, And Sometimes Cash. They Seek A Balance Between Capital Appreciation And Income Generation.

  • Objective: Balance Between Capital Appreciation And Income Generation Through A Mix Of Stocks And Bonds.
  • Benefits: Reduced Risk Due To Diversification, Potential For Both Growth And Income.

Target Date Funds

These Funds Automatically Adjust Their Asset Allocation Over Time Based On A Target Retirement Date. As The Target Date Approaches, The Fund Becomes More Conservative.

  • Objective: Adjust Asset Allocation Based On The Investor’s Expected Retirement Date.
  • Benefits: Automatically Adjusts Risk As Retirement Approaches, Suitable For Hands-off Investors.

Global Or International Funds

These Funds Invest In Stocks And Bonds From Companies And Governments Outside The Investor’s Home Country. They Offer Exposure To International Markets.

  • Objective: Diversify Investments By Including Assets From Foreign Markets.
  • Benefits: Exposure To International Growth, Potential For Higher Returns Compared To Domestic-only Investments.

Specialty Funds

These Funds Focus On Specific Investment Strategies Like Socially Responsible Investing (Sri), Real Estate, Commodities, Or Alternative Investments.

  • Objective: Implement Specific Investment Strategies Or Themes.
  • Benefits: Align Investments With Personal Values (SRI Funds), Exposure To Unique Assets Like Real Estate Or Commodities.

Exchange-traded Funds (ETFS): 

While Not Strictly Mutual Funds, Etfs Are Similar In Structure. They Trade On Stock Exchanges Like Individual Stocks And Often Track An Index Or Specific Market Sector.

  • Objective: Similar To Mutual Funds But Trade On Stock Exchanges.
  • Benefits: Intraday Trading, Typically Lower Expense Ratios Than Traditional Mutual Funds, Flexibility.

SIP 

The Systematic Investment Plan (Sip) Is A Most Popular And Easiest Way To Invest In Mutual Funds. Sip Is Like A Pre-set Investment At A Pre-decided Fixed Frequency, Usually A Month Or Quarter Or Semi- Annually Or Annually. Sip Is A Systematic Investment Plan That Allows Investors To Invest Their Savings Automatically From Their Bank Account To A Fund Scheme. 

The List Of Best Mutual Funds For Sip:

Fund Name 5Year Return %5-year Return (%)*
Quant Active Fund Direct-Growth23.43%23.41%
Parag Parikh Flexi Cap Fund Direct-Growthe18.81%
Quant Large and Mid Cap Fund Direct-Growth18.37%18.33%
Mirae Asset Emerging Bluechip Fund Direct-Growth17.65%17.63%
PGIM India Flexi Cap Fund Direct-Growth17.60%17.65%
Quant Focused Fund Direct-Growth16.66%16.52%
Kotak Equity Opportunities Fund Direct-Growth16.39%16.41%

These Are Just A Few Examples, And There Are Many Other Specialized Types Of Mutual Funds Available, Each Of Tham Has A Different Investment Objectives And Risk Profiles.

How To Invest In Mutual Funds ?

Investing In Mutual Funds Is Relatively Straightforward. Here’s A General Outline Of The Steps:

  1. Research And Goal Setting:Define Your Financial Goals And Risk Tolerance.Research Different Types Of Mutual Funds That Align With Your Goals.
  2. Select A Fund:Choose A Mutual Fund Or Funds That Suit Your Investment Objectives.Consider Factors Like Fund Performance, Fees, And The Fund Manager’s Track Record.
  3. Open An Account:If You Don’t Already Have One, Open An Investment Account With A Brokerage Or A Fund Company Directly.
  4. Fund Your Account:Transfer Money Into Your Investment Account From Your Bank Account.
  5. Place Your Order:Choose The Mutual Fund(S) You Want To Invest In.Specify The Investment Amount Or Number Of Shares You Want To Purchase.
  6. Investment Execution:The Mutual Fund Shares Will Be Purchased At The End Of The Trading Day At The Fund’s Net Asset Value (Nav).
  7. Monitor Your Investment:Keep Track Of Your Investment’s Performance.Review Your Investment Periodically To Ensure It Aligns With Your Goals.
  8. Additional Investments:You Can Make Additional Investments In The Same Fund Or Different Funds Over Time.
  9. Dividend Reinvestment:Some Funds Offer An Option To Reinvest Dividends Automatically To Buy More Shares.
  10. Redemption:If You Decide To Sell Your Mutual Fund Shares, You Can Place A Redemption Order. The Sale Will Be Executed At The End Of The Trading Day At The Current Nav.

Dos And Don’ts In Mutual Fund ?

Dos:

  • Do Set Clear Financial Goals: Define Your Investment Objectives, Such As Retirement Planning, Buying A House, Or Saving For Education.
  • Do Diversify: Spread Your Investments Across Different Types Of Funds To Reduce Risk. Diversification Can Help Mitigate Losses From A Poorly Performing Fund.
  • Do Research Funds: Thoroughly Research The Funds You’re Considering. Look At Historical Performance, Expense Ratios, Fund Manager’s Experience, And The Fund’s Investment Strategy.
  • Do Understand Risk: Understand The Level Of Risk Associated With Each Fund. Higher Potential Returns Often Come With Higher Risk.
  • Do Invest For The Long Term: Mutual Funds Are Generally Better Suited For Long-term Investing Due To Market Fluctuations. Avoid Making Impulsive Decisions Based On Short-term Market Movements.
  • Do Keep An Eye On Fees: Choose Funds With Lower Expense Ratios, As Fees Can Eat Into Your Returns Over Time.
  • Do Monitor Performance: Regularly Review Your Fund’s Performance, But Don’t Overreact To Short-term Fluctuations.
  • Do Rebalance: Periodically Rebalance Your Portfolio To Ensure It Aligns With Your Original Asset Allocation Strategy.

Don’ts:

  • Don’t Chase Performance: Avoid Investing In Funds Solely Because They Had Recent High Returns. Past Performance Doesn’t Guarantee Future Success.
  • Don’t Overlook Fees: High Fees Can Significantly Impact Your Returns Over Time. Be Cautious Of Funds With Excessive Expenses.
  • Don’t Ignore Your Risk Tolerance: Don’t Invest In Funds That Are Too Risky For Your Comfort Level. Your Investments Should Align With Your Risk Tolerance.
  • Don’t Panic In Market Downturns: Avoid Making Hasty Decisions When Markets Decline. Selling During A Downturn Can Lock In Losses.
  • Don’t Overdo It: Avoid Holding Too Many Funds, Which Can Lead To Overcomplication. Strive For A Balanced And Manageable Portfolio.
  • Don’t Forget Taxes: Be Aware Of Potential Tax Implications, Especially In Taxable Accounts. Certain Fund Activities Can Trigger Tax Liabilities.
  • Don’t Neglect Reassessment: Don’t Set And Forget. Periodically Review Your Investment Strategy To Ensure It’s Still Aligned With Your Goals.
  • Don’t Make Emotional Decisions: Avoid Making Investment Decisions Based On Fear Or Greed. Stick To Your Long-term Plan.

Final Words

 Investing In Mutual Funds Can Be A Great Way To Grow Your Wealth Over Time And Work Towards Your Financial Goals, If It Is Done With Careful Planning, Research, And A Long-term Perspective. Taking Advice From Financial Professionals Can Provide Valuable Guidance.So It Is Important To Take Advice From Experts Before Investing. 

Happy Investing And Best Of Luck In Advance On Your Financial Journey!.

What Are Best Mutual Funds 2023 Companies ?

Canara Robeco Bluechip Equity Fund
BlackRock
Nippon India Japan Equity Fund
Edelweiss US Technology Equity Fund of Fund
Fidelity® 500 Index Fund
Kotak Global Emerging Market Fund
Franklin Asian Equity Fund

How To Invest In Mutual Funds ?

Research And Goal Setting
Select A Fund
Open An Account
Fund Your Account
Place Your Order
Investment Execution
Monitor Your Investment
Additional Investments
Dividend From best
Redemption.

Best Mutual Funds To Invest In 2023 ?

Some Of Best Performing mutual funds given below :

Canara Robeco Bluechip Equity Fund
Black Rock
Nippon India Japan Equity Fund
Edelweiss US Technology Equity Fund of Fund
Fidelity® 500 Index Fund
Kotak Global Emerging Market Fund
Franklin Asian Equity Fund

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