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What are Mutual Funds ?

A mutual fund is a collective investment vehicle that collects & pools money from a number of investors and invests the same in equities, bonds, government securities, money market instruments. The money collected in mutual fund scheme is invested by professional fund managers in stocks and bonds etc. in line with a scheme’s investment objective. The income / gains generated from this collective investment scheme are distributed proportionately amongst the investors, after deducting applicable expenses and levies, by calculating a scheme’s “Net Asset Value” or NAV. In return, mutual fund charges a small fee. In short, mutual fund is a collective pool of money contributed by several investors and managed by a professional Fund Manager. Mutual Funds in India are established in the form of a Trust under Indian Trust Act, 1882, in accordance with SEBI (Mutual Funds) Regulations, 1996. The fees and expenses charged by the mutual funds to manage a scheme are regulated and are subject to the limits specified by SEBI.

Why Invest In Mutual Fund

As investment goals vary from person to person – post-retirement expenses, money for children’s education or marriage, house purchase, etc. – the investment products required to achieve these goals too vary. Mutual funds provide certain distinct advantages over investing in individual securities. Mutual funds offer multiple choices for investment across equity shares, corporate bonds, government securities, and money market instruments, providing an excellent avenue for retail investors to participate and benefit from the uptrends in capital markets. The main advantages are that you can invest in a variety of securities for a relatively low cost and leave the investment decisions to a professional manager.
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Types of Mutual Fund

Equity Mutual Fund

Equity mutual funds are funds that invest in the stocks of multiple companies on behalf of the investor, and help diversify their risk. Because they often hold a hundred or more stocks, equity mutual funds make it easy for investors to instantly invest in a large pool of companies and begin the process of building real wealth.

Large Cap Fund

This fund at least 80% investment in large cap stocks

Mid Cap Fund

These fund at least 65% investment in mid cap stocks

Small Cap Fund

These fund at least 65% investment in small cap stocks

Multi Cap Fund

These fund at least 65% investment in equity & equity related instruments

Debt Mutual Fund

A debt fund (also known as income fund) is a fund that invests primarily in bonds or other debt securities. Debt funds invest in short and long-term securities issued by government, public financial institutions, companies Treasury bills, Government Securities, Debentures, Commercial paper, Certificates of Deposit and others.

Money Market Fund

These fund invest in Money Market instruments having maturity upto 1 Year

Corporate Bond Fund

These fund invest minimum 80% investment in corporate bonds only in AA+ and above rated corporate bonds

Overnight Fund

These fund invest overnight securities having maturity of 1 day

Liquid Fund

These fund invest debt and money market securities with maturity of upto 91 days only

Hybrid Mutual Fund

Hybrid funds Invest in a mix of equities and debt securities.SEBI has classified Hybrid funds into 7 sub-categories.They seek to find a ‘balance’ between growth and income by investing in both equity and debt.Equity oriented hybrid funds are ideal for investors looking for growth in their investment with some stability.

Aggressive Hybrid Fund

65% to 80% investment in equity & equity related instruments; and 20% to 35% in Debt instruments

Arbitrage Fund

Scheme following arbitrage strategy, with minimum 65% investment in equity & equity related instruments

Multi Asset Allocation Fund

Investment in at least 3 asset classes with a minimum allocation of at least 10% in each asset class.

Dynamic Asset Allocation or Balanced Advantage Fund

Investment in equity/ debt that is managed dynamically (0% to 100% in equity & equity related instruments; and 0% to 100% in Debt instruments)

Solution-oriented & Other funds

Fund for future planning.

Children’s Fund

Lock-in for at least 5 years or till the child attains age of majority whichever is earlier

Retirement Fund

Lock-in for at least 5 years or till retirement age whichever is earlier.

Index Funds/ ETFs

Minimum 95% investment in securities of a particular index

Fund of Funds (Overseas/ Domestic)

Minimum 95% investment in the underlying fund(s).
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