Mutual Funds As the name suggests, the money of many people are invested in one fund. In mutual funds, money from various investors is collected and this money is invested in equity, gold, shares or bonds. Units are allotted to the investor for his money and in proportion to these units, mutual fund houses distribute the profits made by buying and selling shares or bonds among the fund (unit) holders.
Apply Now Contact UsMutual fund holders get this dividend or all expenses incurred on dividend funds like AMC (Asset Management Company) charges, admin expenses, agent's commission etc. Usually, mutual funds are launched in the market from time to time under one scheme. It is necessary for every mutual fund to get its name registered with the Securities and Exchange Board of India (SEBI).
You can invest in mutual funds on your own or with the help of a broker. For this, you need to open a bank demat account. It is better for investors to adopt a Systematic Investment Plan (SIP), in which complete planning is done about how much to deposit and for how long?. Now when you sell your mutual funds then there are some tax implications on it, which is very important to understand.
Equity-based mutual funds:- These funds invest your money in equities or stocks and they also have different categories they could be
The large-cap:- meaning the big companies like the top 100 companies in the market are called the large-cap companies.
Mid-cap:- The companies coming from the 101st to 150th rank in the market are kept in the category of midcap companies.
Small-cap:- the companies below 250th rank in the market are called small-cap.
Debt mutual funds:- They are like a fixed deposit where you get an assured income on them, and they come with very less risk, as the risk is less in this the return is also less.
Hybrid mutual fund-:- It will have some part of equity and some part of the debt in it, naturally a balanced fund. if you don't want to take the high risk but at the same time you don't want to play too safe like in-depth Mutual Funds then you should consider a hybrid mutual fund for your investment purpose
The best thing is that, if you are taking an equity-linked mutual fund or even a hybrid, it's treated as a capital gain like stocks. Capital gain means whatever profit you have earned you have to pay taxes on, now there are two types of taxes on equity-linked mutual funds.
Short term capital gain tax:- if equity mutual funds are sold within a year they come in the category of short term capital gain tax and the short term capital gain tax in India right now is 15% which means if you get a profit of rupees 100 by selling it within a year then you will have to give 15% of it as tax to the government.
Long term capital gain tax:- if you hold a fund for a year means if you did not sell the mutual fund for a year then it falls under the category of a long term capital gain tax, and in India, long term capital gain tax is 10%.and the good thing is that there are No tax is to be paid for-profit up to Rs.1 lakh, so it automatically tells you that if you buy equity or hybrid mutual fund then my advice would be to not sell it before a year my suggestion would be to keep it for 5 to 7 years if possible.
Taxes on debt mutual funds:- -If you sell a debit fund then whatever is the capital gain is it gets added to your income and then you have to pay tax according to your income tax slab, so it is not part of the capital gain short term or long term it is simply counted as in the income gain from other sources and you have to pay income tax on that.
Now as we have known about mutual funds above, the question arises which option will be better for investors: the stock market or any mutual fund.
The answer is simple stock market can provide you better returns in comparison with mutual funds but as we know making money in the stock market is not that easy, it comes with high risk, share market needs time, research, experience and expertise you should consider investing in it only if you have all these because it is not like doing any part-time job, you need to be completely focused on it.
And if you are a normal working person who cannot devote enough time to the stock market and does not have enough knowledge about it, then you should consider investing in mutual funds because your money in mutual funds is invested very carefully by the experts, as they are not completely risk-free but in comparison with the stock market the risk is very less, and they do not require any deep analysis and time.
Now as we know that mutual funds are more secure than the stock market, where a person in the stock market needs to do a thorough analysis before investing in a stock, whereas in mutual funds all this work has been by the experts on your behalf.
Therefore, I think that even if a person invests in stocks, he must consider investing a small amount of his money in any mutual fund. In mutual funds, you also get the option of SIP (Systematic Investment Plan) in the funds of your choice, as well as you can deposit a lump sum amount which makes it even better.