A first-time investor? Here is your guide to navigating mutual funds

Indian mutual fund schemes have witnessed unprecedented growth in recent years. This is because the Indian economy has been growing rapidly, and companies are making more profits than before. If you do not already have any investments in mutual funds, now might be the best time to open an account and start investing. 

But a mutual fund investment is not like investing in fixed deposits or sovereign saving schemes. Unlike fixed deposits, mutual fund returns are not guaranteed. But a quick scan of the top Indian mutual fund schemes proves that mutual funds have forever provided higher returns than conventional instruments. 

You are at the right place if you want to know what a mutual fund is and how to find and invest in the best-performing mutual funds

What Are Mutual Funds?

Imagine you want to buy a house for investment but do not have the funds to do so. And you won’t like to take a loan either. So, you inform your spouse and relatives of your intention. They decide to contribute to helping you fulfil your dream. After five years, the house’s value increases by 50%. So, you decide to sell the house and distribute the profit among all investors. 

The concept of mutual funds is the same. In a mutual fund, multiple investors pour money and fund managers invest in stocks, bonds, certificates of deposit, commodities, derivatives, and money market instruments. The fund managers work under the umbrella of AMCs or Asset Management Companies. AMCs offer various schemes across asset classes like equity, debt, commodities, derivatives, etc. 

What are the Types of Mutual Funds?

Mutual funds can be regular or direct, growth or IDCW, and open-ended or close-ended. Let’s understand each in detail.

Regular and Direct 

When investors open a mutual fund account through an empaneled distributor or broker, it is known as ‘Regular.’ Conversely, when you invest in a mutual fund scheme by visiting the appropriate category on the AMC’s official website, it is known as ‘Direct.’ The returns from ‘Direct’ funds are usually around 1% higher than ‘Regular’ funds.

Growth and IDCW

Growth funds do not pay any dividends; instead, the fund managers use any extra income for the funds’ growth. So, growth funds’ NAV increases faster than IDCW funds. However, IDCW or Income Distribution cum Capital Withdrawal funds are good for getting income at fixed intervals. There are four dividend payout modes – monthly, quarterly, half-yearly, and annual. Since IDCW funds make payments from the concerned funds, the NAV increases tepidly. 

Open-Ended and Close-Ended

An open-ended fund always remains open for subscription. You can invest in or withdraw from an open-ended fund at any time. In contrast, close-ended funds remain open for a limited time, known as the NFO (New Fund Offer) period. The money gets automatically transferred to your account on maturity.

How Can You Make Mutual Fund Investments?

You can make mutual fund investments in two broad ways – online and offline. The online mode is more convenient than offline since you do not need to visit a broker or the distributor’s office. All you need to do is check the past performance of funds for mutual fund calculation and upload documents like PAN and Aadhar cards. Once the AMC accepts your documents, you can transfer the investment amount via net banking, debit, or credit cards. It typically takes two days to transfer the units to your mutual fund account.

After your mutual fund account (read, folio) gets created, you can check the portfolio value online and invest or redeem. You can also place switch requests from within the portfolio dashboard.

ConclusionMutual fund investments can be very remunerative if you know the best funds. Mutual fund calculation can help you align funds with your goals and pick suitable ones. PGIM Mutual Fund offers industry-leading mutual fund schemes with consistent performance records. Browse the best performing PGIM Mutual Fund schemes and give your capital the correct market exposure.

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