MF SIP

What is a Mutual Fund?

A Mutual Fund is a trust that collects money from multiple investors who share common financial goals. This pooled money is then invested in various asset classes (such as equities, bonds, or money market instruments) based on the stated objectives of the mutual fund scheme.

Since investors rely on these stated objectives while choosing a fund, the mutual fund is obligated not to deviate from them. Each mutual fund is managed by a professional fund manager, who uses their expertise and research to make investment decisions, aiming to deliver better returns than what individual investors might achieve on their own.

The profits from these investments—such as capital appreciation and income—are distributed among investors (also called unit holders) in proportion to the number of units they hold.

When an investor purchases units of a mutual fund, they become a part-owner of the fund's assets based on their contribution to the total corpus. The performance of the fund is reflected in its Net Asset Value (NAV), which is calculated as:

NAV = (Market Value of Assets – Liabilities) / Total Number of Units Issued

Example:
If the fund’s total asset value is ₹100,000 and 10,000 units are issued, the NAV is ₹10.
If an investor holds 5 units, their investment value is ₹50 (5 x ₹10).

Types of Mutual Funds

• Equity Funds: Primarily invest in stocks. These include diversified funds, mid-cap, sector-specific, and tax-saving funds.
  Examples: HDFC Equity Fund (Mid-cap), Franklin India Blue-chip Fund, HDFC TaxSaver.
• Debt Funds: Invest in fixed-income securities to offer stable returns with lower risk. Includes gilt funds, income funds, MIPs, and liquid funds.
  Examples: HDFC Floating Rate Income, Tata Gilt Retirement.
• Balanced Funds (Hybrid Funds): Combine equity and debt investments to balance risk and return.
  Examples: Tata Balanced Fund, Birla Sun Life 95.

What is a Systematic Investment Plan (SIP)?

A Systematic Investment Plan (SIP) allows investors to invest a fixed amount at regular intervals (e.g., monthly or quarterly) in a mutual fund scheme. It offers several key benefits:

• Power of Compounding: Regular investments help your money grow exponentially over time, as you earn interest on both your principal and previous returns.
• Rupee Cost Averaging: SIPs automatically buy more units when the NAV is low and fewer units when the NAV is high, lowering the average cost per unit over time.
• Flexibility: Investors can choose the amount, frequency, and duration of investment. SIPs can also be paused, modified, or stopped anytime.
• Disciplined Investing: SIPs instill a habit of consistent saving, which is essential for building long-term wealth.