Check out How Your Mutual Fund Investments Are Taxed

As a financial instrument, mutual funds are widely considered to be secure, sustainable, and reliable. This is primarily because they are professionally managed, offer a diverse portfolio and are largely cost-effective.

However, a number of people are concerned whether the tax saving mutual funds, actually help to save taxes or it’s just a publicity gimmick. Although there are a number of exemptions and deductions available on most funds, investors aren't usually aware of such details. All they tend to know is that mutual funds aren't taxed at the source. What they aren't told is that even without TDS, investors are not released from the obligation of mentioning the gains that accrue from tax saving mutual funds when they file their IT returns.

This is why it is important to know how mutual fund investments are taxed in India.

What of Taxation?

In India, there are a few essential types of taxation. These are:

- Capital gains- A capital gains tax is charged on the profits or gains which accrue on a mutual fund investment over a certain period.

- Dividend Distribution Tax (DDT)- If your mutual funds yield dividends, the fund house deducts a dividend distribution tax before paying them to you.

- Securities Transaction Tax (STT)- When you sell a mutual fund, an STT is levied at the rate of 0.001%. It is charged on the sale of both, equity and hybrid funds.

So, whether you invest in Equity linked saving scheme (ELSS) mutual funds or any other form of tax saving mutual funds, you will be subject to these three type of taxes. Nevertheless, the specific rate of taxation will vary according to the type of fund that you have invested in and its total holding period.

What Is the Holding Period?

When it comes to tax saving mutual funds, the holding period is defined as the amount of time for which the fund has been held by an investor. It can either be long-term or short-term.

The current guidelines in this regard are:

- Equity Mutual Funds- A period greater than 12 months is considered to be long-term while a period lower than 12 months is considered to be short-term.

- Balanced/Hybrid Mutual Funds- Their holding period is exactly the same as equity mutual funds.

- Debt Mutual Funds- For these, a period greater than 36 months is considered to be long-term whereas a period lower than 36 months is defined as short-term.

- International Funds- The holding period of mutual funds in the international category is just the same as debt mutual funds.

- Other Hybrid Funds- For other funds, if more than 65% of their assets are invested in equity, their holding period would be similar to equity funds. If less than 65% of assets are invested in equity, their holding period would be the same as debt funds.

How Are Mutual Funds Taxed?

The taxation process for the entire mutual fund portfolio can be better understood by undertaking an individual analysis of all the fund types. These include:

Equity Funds

These funds can generally be divided into two types, namely tax saving mutual funds and non-tax saving equity funds.

In the non-tax saving equity funds category, the first Rs.1 lakh earned is completely tax-free. However, a long-term capital gains tax (LTCG) is charged at a rate of 10% at every profit sum earned thereafter. No benefit of indexation is provided. Also, a short-term capital gains tax (STCG) of 15% is levied, if the fund is held for less than 12 months.

In the tax saving mutual funds category, the ELSS mutual funds, are the most efficient vehicles. Under section 80 (C) of the Income Tax Act, 1961, the ELSS mutual funds, which come with a lock-in period of three years offer a tax deduction of about Rs.1.5 lakh.

The dividends obtained on equity funds are taxed at a rate of 10%, whereas the dividends of non-equity funds are levied a tax at the rate of 28.84%.

Debt Funds

The LTCG on debt funds is charged at a rate of 20%. Nonetheless, these rates are subject to indexation. In simple words, indexation is a mechanism which helps to factor in the cost of inflation which occurred between the time when the fund was initially bought and the time when it was finally sold.

The SCGT is not separately charged on profits from debt funds. Instead, it is included within the income tax which is levied on you depending on which specific taxation slab you fall under.

Balanced/Hybrid Funds

The balanced or hybrid funds are tax saving mutual funds as they are treated in exactly the same way as their equity counterparts. You can even purchase the ELSS mutual funds via the balanced fund route if more than 65% of their assets are invested in equity. 

Non-Resident Indians

Unlike other tax saving mutual funds, a TDS is charged from the funds purchased by non-resident Indians. Moreover, STCG and LTCG are also levied upon them. The tax rate for both, equity and debt funds varies for NRIs in the following way:

- Equity (Short-term)- 15%

- Equity (Long-term)- 10%

- Debt (Short-term)- 30%

-  Debt (Long-term)- 20%

Systematic Investment Plans

Last but not least, the systematic investment plan (SIP) is a method which allows the investment of a fixed amount periodically in any mutual fund. This period may range from a fortnight or a month to a quarter or even a year. From the taxation point of view, every SIP is treated as a fresh investment and thus, gains made from each one of them are taxed separately. This can be better understood with the help of an example.

Consider that you begin investing Rs. 10,000 per month as an SIP. After the completion of 12 months, when you want to redeem your money, only the first investment made in the first month and the gains which have accrued from it will be tax-free. The gains procured on all subsequent SIPs would be subject to STCG. This is because, after 12 months only the first SIP would have completed a year. Every other SIP would be treated as a new investment.

The Road Ahead

If the aforementioned taxation system still appears to be too complex, you can easily seek assistance from online platforms like Coverfox. Not only would they help you in determining your total tax liability, but they would also guide you to effectively invest in the best tax saving mutual funds.

Whether you choose to go for an SIP or an ELSS mutual fund, if your primary purpose is tax efficiency, you should try to seek sound advice and proceed cautiously. After all, it is only wise investments which can lay the foundation for high and tax-secured returns.

Why tax-saving mutual funds are the best way to save on taxes

You can’t grow long term if you can’t eat short term; one can always manage short and long-term goals as independent as it can be. The art lies in balancing both your short and long-term goals successfully.  Many of us plan our retirement and needless to say it’s one thing that isn’t in our list of things. We focus on saving tax every year, but we need to better manage it to achieve our long and short team goal. Tax saving should be done in two parts i.e. first save tax for the year and next, invest in funds for your retirement.

So the next question obviously is, do we have instruments that will help us save tax and plan our future. Yes, we have an equity-linked saving scheme or as we call it ELSS of mutual funds.  In Income Tax Act, under Section 80 C, one can invest up to INR 1.5 lakh for a financial year. One can always invest more than INR 1.5 lakh, but it won’t qualify for tax benefit.  There was a recent announcement that the return generated from ELSS will become taxable with the dividend distribution tax and taxes on the long-term capital gain. In spite of the changes, it’s a good option for young earners who are starting to save for retirement and tax. The benefit of ELSS is short lock-in period and provides the potential for growth via equity.

Understanding Equity Linked Saving Schemes

ELSS is equity diversified mutual fund scheme with a lock-in period of three years from the date of investment. Post completion of the lock-in period, the scheme turns into an open-ended scheme and one can withdraw the fund. It’s better to keep the funds invested considering your long-term goal of retirement. These funds are managed by fund managers who are experienced finance professionals with a better understanding of the benefits of tax saving, plus are offered by fund houses. It’s important to decode why ELSS is a better investment under Section 80 C to save tax.

Types of ELSS

ELSS has two main categories of funds i.e. Dividend and Growth fund.  Dividend Fund is further subdivided to Dividend Payout i.e. you will receive the dividend tax-free and Dividend reinvestment i.e. your investment will be reinvested as a fresh investment. Growth Fund provides long-term wealth creation platform for investors where the full value of the fund is realised at the time of redemption.

How ELSS is better than all other 80C Investments             

ELSS still is considered one of the best options to invest even though the returns are being taxed as per the new guidelines.  Returns attract long-term capital gains from ELSS, but they should still continue to be part of your investment portfolio as per the industry experts. These are equity-based investment instruments that provide the potential of higher returns considering the long-term scenarios. In comparison to other investment options like PPF and ULIPS, post-tax returns are better for ELSS.

Short lock-in period: This is one of the attractive aspects of investing in ELSS in comparison to other tax saving investment option. The lower lock-in period is beneficial to an investor. Whether it is Public Provident Fund, Employee Provident Fund or National Saving Certificate (NSC), all required a minimum lock-in period ranging from five to fifteen year where ELSS stands at a minimum of a three-years.

High Returns on Investment (ROI): We all invest to gain profit, increase our savings and of course, hopes to fulfil our aspirations. Since ELSS is invested in equity markets, the returns are much higher than other investment options.  While we save tax, these profits earned in long run is a better option of investment in Section 80 C with a focus on not too short or mid-range of investment duration. Public Provident Fund provides eight percent returns, while ELSS can generate anything in the range of ten to twelve percent in a period of ten plus years. The returns from NSC and other life insurance schemes are also less than of ELSS.

Flexibility with ELSS:  ULIP’s don’t provide flexibility of ELSS; in case we are not okay with the ELSS fund, one can always moved to another fund since there is no multi-year commitment. With ULIP non-performance, one can move or invest in funds that are offered only that ULIP. It’s true that ULIP can also provide similar returns like that of an ELSS and are sold at a low cost by insurance firms directly.

Benefit of Combining ELSS and PPF: This is a solid combination since together, they cover the stability of PPF and earning a potential of ELSS.  The next advantage is that you combine debt and equity both in your investment portfolio with government-backed security and opportunity of growth through fund house.

 Protection in times of volatility:  Since the lock-in period if of three years, it helps to build a discipline and stay away from fear of changing your fund house too frequently.  In terms of changing market’s, they act as a strong shield to weather the volatility that comes with investing in stock markets. In simple terms, it enjoys the benefits of market high and has provisions to reduce the impact of marker low.

Things to know about ELSS before you invest

Before we even start with our selection of ELSS, tax saving mutual funds, one should know how much to invest, duration and the objective of the investment i.e. is it for saving tax or your retirement or your dream house goals?

Look at your earning, spends and time frame to achieve your goal, inflate the expenses and see how much surplus you have to start investing.

Selecting your ELSS isn’t a simple task since we have multiple options like Large Cap, Mid Cap or Multi-Cap Stocks. It will be good to diversify across on not more than 2 to 3 ELSS with variation in industry and market capitalisation.

It is crucial to consider all facts about the fund and your financial objective before investing. One should keep reviewing the performance of schemes after the lock-in period is completed. Don’t look at funds in isolation, look at its benchmark return with consistency to beat its benchmark and at the category average returns will tell how good or bad is your investment against its peers.  Don’t look at a short-term run; incentivise your long run by balancing your investment goals.

Tips for NRIs to Invest in Indian Mutual Funds

Indians migrate to other countries in search of better paying job opportunities. However, most Indians want to return to India one day as no place in the world can replace the joy of living in your own country. Be it the rich culture, food, or weather conditions, India is truly an incredible place to live. Most of the Indians that go abroad for work have dependents living in India. In such a case, making an investment in India becomes almost necessary for them. This article will give out tips for NRIs to invest in Indian mutual funds.

Can a NRI (Non-Resident Indian) invest in mutual funds in India?

Absolutely, NRIs can invest their money in mutual funds in India provided that they comply with the Foreign Exchange Management Act (FEMA). Through mutual funds, an NRI investor is able to create a diversified portfolio of a good mixture of equity and debt securities. Even if the NRI investor wants to play safe and requires regular income from the investment, then the Indian debt market has good potential to fulfil the desired requirements. The investment can be made with an appropriate mixture of equity, hybrid, and debt funds.

What are the benefits of mutual fund investments for NRIs

Today in the entire world, India has become one of the fastest growing economies and due to this, thousands of investors all around the world want to invest in India. The following are the benefits that NRIs can enjoy through mutual funds:

Manage fund online easily from anywhere

Thanks to technology and internet, it has become easier to manage and track mutual fund performance from anywhere in the world. Investors can control their investments online like switching and redeeming funds. There is no requirement to give physical bank DD/cheque or requirement of being in the same country.  In today’s day and age, most companies send the regular statement (CAS) through email. All the information related to the best mutual funds is updated online on a daily basis which can be accessed by the investor from anywhere, just by login to the mutual fund house website.

NRI investor can make more profit from currency exchange prices

If the value of the rupee has fallen as seen in recent times against the dollar, then as an NRI investor he/she can get more gains out of their investment. For example – If 1 dollar is equal to 74 rupees, then an NRI investor can get more units of a particular mutual fund. The dividend and returns due to increasing gap of the currency will help fetch higher returns and overall more profit for the NRI investor.

What is the Procedure for NRIs to invest in India

The mutual fund houses do not accept or foreign currency. The NRI investor will first need to open an NRE account, NRO account or FCNR (Foreign Currency Non –Resident) account with the bank in India. Following the opening of the above-mentioned account investment in the mutual funds can be done in the following ways-

  

a. Self

An NRI investor can carry out the transaction through normal banking platforms. The application along with KYC details need to be confirmed if the investment is on a repatriable or non-repatriable basis. For KYC, an investor will need to furnish passport copy, PAN card copy, residence proof outside India and a bank statement. The bank may ask for in-person verification which can be done by visiting the Indian embassy of the resident country.

b. Through Power of Attorney

The other method is to give the rights to someone else to do the investment on your behalf in India. Mutual fund house entertains Power of Attorney holders to make the investment and take crucial investment decisions on the NRI investor’s behalf. The signature of both the parties i.e. the NRI investor and the Power of Attorney holder need to present on the KYC document to make the investment.

Regulations set for NRI investors for mutual funds

KYC for NRIs

NRI investor needs to get the KYC done mandatorily for investment in mutual funds. They will need to submit proof of identity and residential proof.

FIRC (Remittance Certificate)

If the payment in the mutual fund investment is made through a draft or cheque, then the NRI investor need to attach FIRC (Foreign Inward Remittance Certificate) along with it. If that is not possible, then a letter confirmation from the bank will also do to confirm the funds have come through a legal channel.

 Redemption

The best performing mutual funds house will credit the investment (capital amount + gains) to the NRI investor account on redemption. If the investor has opted for non-repatriable investment, then the redemption proceeds can only be transferred to an NRO account.

What are the Tax implications for NRI Mutual Fund Investors?

Most of the time, NRI investors have the misconception that they will have to pay taxes in India and also in the resident country. This is not the case if India has signed a DTAA treaty (Double Taxation Avoidance Treaty) with the resident country. For example, if the taxes are also deducted in India on the investment, then the NRI investor will not have the liability of tax to be paid in his/her resident country.

Some of the reputed Mutual Fund Houses in India that accept NRI Investments

•    HDFC Mutual Fund

•    Sundaram Mutual Fund

•    DHFL Pramerica Mutual Fund

•    PPFAS Mutual Fund

•    SBI Mutual Fund

•    Birla Sun Life Mutual Fund

•    ICICI Prudential Mutual Fund

•    UTI Mutual Fund

•    L&T Mutual Fund

Some Important Points to remember when investing in India

•    Attachment of resident proof in the foreign country is mandatory along with the application

•    The right of repatriation of the amount is valid only until you have the NRI status

•    US and Canada have more stringent compliance of overseas investments for their residents

•    Check if your resident country comes in the countries that have signed the Common Reporting Standard.  CRS has been formed to report and eradicate tax evasion for the investment made in other foreign countries.

NRIs can certainly choose to invest in their home country. The process may look a bit complex initially but in the long run, the investments made in the home country are worth it. Presently there are eight mutual fund houses that are accepting investment in mutual funds from NRIs living in USA and Canada, where majority of Indian choose to travel for work. Hence, if you are a NRI then you should not miss the opportunity of investing in one of the fastest growing economies in the world.

Mutual funds have become the best source of wealth creation from market-related investments.  Mutual funds mitigate the market-related risks and give the investor an opportunity to make the most from the investment. An investor can track the progress of his/her mutual fund online on a regular basis to know the performance of the mutual fund. One of the key components when it comes to tracking the mutual fund performance is NAV (Net Asset Value) of the fund. The NAV is updated daily and is accessible to the investor to see. In this article, we will learn about the NAV and how NAV of a mutual fund is calculated.

What is NAV?

When an investor invests in mutual funds, units are allotted for the specified amount. NAV is the value per unit of the particular mutual fund on a specified day. It can be considered as a book value of the mutual fund.  The NAV gets computed every day of the active stock market. The NAV depends on the stock prices of the companies on a day to day basis, in which the mutual funds hold its investment.  If you plan to sell your mutual fund scheme, it is not necessary that you will be able to sell at the present day’s NAV. Suppose if you sell your mutual fund scheme too early, then you may be charged an exit load on a percentage of NAV. This way your actual selling price and NAV may show different figures.

For example:

If you invest INR 20,000 in a scheme that has a NAV of INR 100, you will be allotted 200 units of that mutual fund scheme. Let’s assume the NAV of the mutual fund increases to INR 110 in the period of six months and you want to redeem them. You will receive INR 22,000, but if the exit load of 1% is applicable on your withdrawal, you will get INR 21780 (200 units X INR 109.9 NAV minus the exit load)

How is mutual fund NAV calculated?

The calculation of the mutual fund NAV is done at the end of the day after the market closes and is based on the market value of the fund. The formula to calculate Ulip NAV is:

NAV = (Assets-Liabilities) / No of outstanding shares

You can use this formula to calculate the NAV of any mutual fund once the market trading is done for the day.

Liabilities generally include long-term and short-term liabilities, in addition to all the expenses, such as administration fees, fund manager salary, and other miscellaneous expenses.

There is a change in the NAV when a number of shares’, assets and liabilities change. If the number of assets increases, the NAV of the mutual fund will increase and if the liabilities increases then the NAV decreases.

For example:

Mutual Fund scheme that you are invested in has INR 100 crore of investments, after the day’s closing price of each asset.

It additionally has INR 7 crore of cash as well as INR 4 crore in total receivables.

The income for the day after trading is INR 7, 50,000.

The scheme has INR 13 crore in short-term liabilities and INR 2 crore in long-term liabilities.

Accrued expenses for the day are INR 1 lakh. The mutual fund has a worth of 5 crore of shares. The NAV will be calculated as per the below formula:

NAV = ((100,00,00,000 + 7,00,00,000 + 4,00,00,000 + 7,50,000) — (13,00,00,000 + 2,00,00,000 + 1,00,000)) / 5,00,00,000 = (111,07,50,000 — 15,01,00,000) / 5,00,00,000 = 19.21

How is NAV (Net Asset Value) different from the price of an equity share?

The market price of an equity share is normally different from its book value. There are many factors dependent on the price of the share that is listed on the stock exchange such as the company’s future and the sectoral performance in which the company is operating.

An investor does not have to worry about the market demand of the mutual fund as there is no such thing as market value for the mutual fund.  The mutual funds can be purchased as per the NAV on the given day.  Hence, the investor never has to worry about the right price of the asset. In a mutual fund scheme, there is no concept of high or low valuation of a mutual fund scheme. All depends on the performance of the stocks which exist in the portfolio of the fund. This makes the valuation of mutual funds more transparent and easy to understand.

Misconceptions about NAV

NAV is only the book value of the mutual fund in India scheme; it has nothing to with undervaluation or overvaluation of the mutual fund. There is a misconception amongst many investors that a fund value of INR 10 is better and cheaper than fund value of INR 100. Many a times, funds with a similar portfolio can have different NAVs. The wrong perception of the NAV is built by the investor for the mutual fund scheme he/she tries to compare the market price of an equity share.

Does NAV matter?

There is a false perception amongst investors that lower NAV will give them better returns. The return of a mutual fund scheme does not have anything to do with the NAV.

For example – an investor has INR 1,00,000 to invest in a mutual fund scheme. There are two options fund A and fund B.

Fund A has NAV of INR 100 and fund B has NAV of INR 500.

The investor will be allotted 1000 units if he/she invests in fund A and 200 units if he/she decides to go for fund B.

On completion of a year say the investment grows by 25%, let’s see the returns on fund A and fund B-

NAV of fund A will be INR 125 and fund B will be INR 625.

The returns calculation of your investment for fund A will be 1000 units X 125 = INR 1,25,000 and for fund B will be 200 units X 625 = INR 1,25,000.

Hence, the returns on both the mutual fund schemes are same irrespective of the different NAV.

Factors that actually affect the mutual fund returns

•    Quality of the mutual fund scheme

•    Quality of stocks in the mutual fund scheme

•    The efficiency of the fund manager and its team

Considering tax-free ULIPs over mutual funds

The popularity of unit linked insurance plans is taking over the insurance industry since the plans have been differing from the characteristics of the traditional plans. It has given tough competition to the mutual funds widely. Pay attention to this article to know why it is the time to choose unit linked insurance policy over mutual funds.

ULIP is found to expose the user to market risks similar to the mutual funds; however, both of them differ on a large scale judging their various aspects such as liquidity, charges and return potentials. The unit linked insurance policy is considered a solid financial product for those seeking investment and insurance without risking too much. Albeit the lower allocation charges and more returns, unit linked insurance policy remains a favourable choice among all.

ULIP: Overview

The unit linked insurance policy is the perfect combination of insurance and investment. There is a lock-in period of 5 years for limited liquidity and the fund management expenses are low, approximately 1.35%. As the unit linked investment is the subtle example of investment along with life cover, it is more convenient for people.

It has been a great product when the stock rise is hiking and the user wishes to benefit out of capital appreciation. ULIP returns are ideal for influencing people to utilise the speculative product for making more money easily. However, various charges can be the barrier during the decline of the market.

Due to the hue and cry about the allocation, fund management or mortality charges, the IRDAI has already restructured ULIPs. Considering the safety aspects, the ULIP edges further than the investment products in the market. However, term insurance is necessary after choosing a unit linked insurance policy. Here, the sum assured is high compared to any other insurance plans.

Features of Unit Linked Insurance Policy

The investment options of ULIP include investing in debt funds or equity funds. You can also invest in both of them. Offering you the freedom to transfer money from funds to funds, it is highly convenient for achieving financial goals.

●        ULIP Tax Benefits – According to Section 80C of the Income Tax Act of India, a user can enjoy tax exemptions of the unit linked investment. The amount of tax-exemption can be up to Rs. 1.5 lakhs on the premium of the policy.

●        Top Up Facility - The tax-benefits are applied for the top ups. If the policy user has surplus cash, it can be invested by making use of the top up. When the premium is below 10% of the sum assured, you can get tax benefit out of the paid premium as per the rule of Section 80C.

●        Benefit on Maturity - Other ULIP policy benefits include planning taxes beforehand due to the provision of a lock-in period of 5 years. If you withdraw money after the maturity period, the procedure is not included under taxes. It helps the user save a huge amount of money.

ULIP benefit is related to the payment of premium and it differs for debt, money market investment and equity. The maximum limit for deduction is Rs. 1.5 lakhs and it is great for being eligible for tax deductions on the premium.

Is Mutual Fund a Better Idea?

Mutual fund companies unanimously agree that mutual fund is better than unit linked investment because the former remains as a complete investment product. Assessing the risk exposure, there are various types of mutual investments and balanced or hybrid funds that look after both, debt and equity. The equity mutual funds are majorly based on the equity.

The equity linked saving or ELSS offers tax deductions. Apart from ELSS, you can opt for withdrawal of the fund instantly by paying 1% of the fund value. The fund management charges are higher than ULIP, ranging around approximately 2.5%.

The biggest advantage of the mutual funds is the rich history in the investment industry. As the mutual funds have been in the market for a long time, the investor can check mutual fund returns easily and choose the right mutual fund company accordingly.

With the implementation of 10% of LTCG or long-term capital gains tax on the equity mutual funds, the users perceive the unit linked investment as a more convenient choice.

ULIP v/s Mutual Fund

●        Low allocation charges for a unit linked plan but 2.5% for mutual fund (MF)

●        No mortality charges for MF but high charges in older age groups in unit linked plan

●        No policy administration charges for MF but Rs. 700-1000 yearly in ULIP plan 

●        15% STGC and 10% LTCG for mutual funds but ULIP gets tax benefits under Section 10(10)D

With the regulatory cap levied on the ULIPs, they have become more attractive to the customers. Now the plan helps in yielding a high amount of returns than the previous time. The incentive programs like Guaranteed Loyalty Additions for investment prolonging more than a decade have become enticing to every investor.  

The level of flexibility is high as the investor can switch between debt funds or equity funds evaluating the market situation. However, the traditional MF policy restricts people to avail such benefit. In addition to the context, there are a certain number of free switches provided to the users but exceeding the number, you may have to pay a small cost.

Then, which one to Choose?

Before concluding with your final decision, ask yourself certain questions which will help you reach the financial goal on time. Keep in mind the following aspects,

●        Risk appetite  

●        Financial goal

●        Any plans for retirement or to compensate foreseen costs

●        Life cover

●        Investment horizon

A person with a long term financial plan can indulge in the benefits of ULIP. If it is to fulfil a child’s education or maintain a regular lifestyle after the retirement, unit linked insurance policy is the best one, due to its life cover and maturity benefits. Providing dual benefit of protection and investments in one solo plan, it surpasses the framework of mutual fund interest rates.

Moreover, if you are not well-acquainted with the equity market and other fund options, a mutual fund can only be disadvantageous in your life. After paying out the LTCG in MF for the long term, the mutual return rates would remain the same. However, a unit linked insurance plan exceeds the returns of MF providing a better way to make easy money.

What is the Best Type of Mutual Fund to invest in?

Mutual funds have become the go-to investment scheme for most of the investors today. The reason behind it is that mutual funds are professionally managed which makes it a smart and less risky, market linked investment.  The person who is responsible for a particular mutual fund is called the Fund Manager. He/she is responsible for making alterations to avert the market risk and get maximum returns. Every fund has an objective and accordingly the investment is made that will fulfil the objective of the fund. The mutual fund units can be redeemed or purchased anytime as per the NAV (Net Asset Value) which is updated on daily basis. This article will help you understand the best type of mutual fund to invest in 2018.

To understand the best type of mutual fund to invest in, it is first necessary to understand different types of mutual funds. Every fund has their own objective and accordingly it offers the returns.  Depending on the objective of the fund, the investment is made into an appropriate type of financial instruments. For example – If the objective of the fund is long-term growth, then the investment from the mutual fund will be done in equity stock of companies. If the objective of the fund is to generate regular income, then the majority of the investment from the mutual fund will be done in debt instruments. Once you understand the types of the mutual fund out there, then you should make the investment in those types of mutual funds which will help you reach your personal financial goals. With the advent of the internet and technology, you can take help of online mutual fund calculator to compare and calculate returns

Types of mutual fund

Debt mutual funds

Debt funds are the type of mutual funds that predominately invest in fixed income securities.  The investment will be made in long-term bonds, short-term bonds, securitised funds, money market instruments, and floating rate debt.

Equity mutual funds

Equity mutual funds are the types of mutual funds that invests primarily in the stocks of the company. Equity mutual funds are managed actively and passively depending on their classification.

(ELSS) Equity-linked savings schemes Mutual funds

One of the main objectives of the equity mutual funds is to help save tax of the investor. Through ELSS, an investor is able to save tax under the provisions of Section 80C of the Income Tax Act, 1961.

Diversified mutual funds

Diversified mutual funds basically invest money in various sectors or industries. This way the dependence on one single sector performance can be avoided and eventually risk factor in the investment can be lowered.

Gilt mutual funds

The investment in this mutual fund is basically made in state and central government. These funds are safe to invest.

Index mutual funds

Index mutual funds basically invest in the companies that are listed on the stock exchanges like BSE and NSE. The NAV of index mutual fund is dependent on the Sensex ratings of the stock exchanges.

Liquid Mutual Funds

As the name suggests, these mutual funds have a short-term objective of returns. The investment is done mostly in money market instruments like deposit certificates, commercial papers, treasury bills etc.

Debt-oriented hybrid funds

The term hybrid represents a mixture of investment. As it is a debt oriented hybrid fund, the majority of investment is done in debt instruments and the remaining is invested in equity. The objective of the fund is to maintain a fine balance of risk and income.

Arbitrage mutual funds

The investment of arbitrage mutual funds is done in both cash and derivatives market.

Dynamic bond mutual funds

The investment in dynamic bond and mutual funds are done in money market and debt instruments. The period of the investment varies as per the investment it makes.

The number of mutual funds has increased drastically over the past few years. This has resulted in a wide variety of options for the investors to choose. Today investors can further streamline their financial objectives and invest in the mutual funds best suited to reach their long term or short term financial goals.

Below are some of the TOP rated Mutual Funds as per different categories:

Top 10 Large Cap Oriented Equity Funds (Regular)

Fund Name	1-Year Returns	3-Year Returns
ICICI Prudential Top 100 Fund	7.46%	10.78%
UTI Top 100 Fund	9.03%	9.42%
SBI Blue Chip Fund	12.09%	12.17%
HSBC Equity Fund	13.39%	11.55%
Reliance Top 200 Fund	9.75%	14.26%
Reliance Vision Fund	6.40%	7.67%
HDFC Growth Fund	13.41%	12.74%
ICICI Prudential Focused Bluechip Equity Fund	14.86%	12.12%
Invesco India Dynamic Equity Fund	13.85%	11.63%
Sundaram Select Focus	16.28%	11.17%

Top Equity Linked Saving Schemes

Fund Name	1-Year Returns	3-Year Returns
DSP BlackRock Tax Saver Fund	9.68%	14.44%
HDFC Long Term Advantage Fund	13.84%	14.13%
Invesco India Tax Plan	18.32%	13.65%
Sundaram Diversified Equity	8.72%	13.59%
Principal Tax Saving Fund	14.68%	16.13%
L&T Tax Advantage Fund	14.95%	15.96%
Tata India Tax Savings Fund	13.31%	15.67%

Short Term Debt funds

Fund Name	1-Year Returns
HDFC Short Term Opportunities Fund	5.99%
UTI – Banking & PSU Debt Fund	5.89%
Kotak Corporate Bond Fund	6.60%
ICICI Prudential Ultra Short Term Plan	5.63%
L&T Short Term Opportunities Fund	5.36%
Reliance Banking and PSU Debt Fund	5.27%

Top Balanced (Hybrid) Funds

Fund Name	1-Year Returns	3-Year Returns
HDFC Balanced Fund	10.72%	12.18%
Reliance Regular Savings Fund – Balanced	12.72%	12.40%
ICICI Prudential Balanced Fund	9.91%	12.15%
DSP BlackRock Balanced Fund	7.28%	11.85%
L&T India Prudence Fund	10.14%	12.12%
Canara Robeco Balance	9.62%	10.98%
UTI Balanced Fund	8.15%	10.78%
HDFC Prudence Fund	4.87%	10.69%
SBI Magnum Balanced Fund	13.06%	10.18%

Top Income Funds

Fund Name	1-Year Returns	3-Year Returns
ICICI Prudential Long Term Plan	5.49%	9.03%
Kotak Flexi Debt	4.83%	8.50%
UTI – Dynamic Bond Fund	3.65%	8.28%
ICICI Prudential Dynamic Bond Fund	3.82%	8.01%
DHFL Pramerica Medium Term Income Fund	4.65%	8.00%
SBI Magnum Income Fund	3.72%	7.86%

Top 10 Liquid Funds

Fund Name	1-Year Returns
Indiabulls Liquid Fund	6.82%
DSP BlackRock Liquidity Fund	6.77%
Reliance Liquidity Fund	6.72%
Axis Liquid Fund	6.86%
BARODA PIONEER Liquid Fund	6.83%
UTI Liquid Cash Plan	6.82%
Invesco India Liquid Fund	6.81%
ICICI Prudential Liquid Plan	6.78%
Sundaram Money Fund	6.75%
HDFC Liquid Fund	6.62%

Conclusion

To invest in a mutual fund, you first will need a clear financial objective. Once the objective is clear, compare mutual funds using Online Mutual Fund Calculator. You can calculate the actual future returns on your investment using the mutual fund calculator to take a decision of investment in a particular mutual fund. Mutual funds are subject to market risk; so ensure you do your research properly before investing. An investor can gain high returns through mutual fund investment but only with the right investment strategy.