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Capital markets mutual funds pool collective investments from corporate and retail investors in the form of units and maintain a portfolio of various schemes that invest these collective investments in equity and debt instruments on their behalf. Investors use mutual funds to invest in equity and debt instruments indirectly rather than directly investing money in them. In India, ordinary investors lack the expertise and knowledge to invest directly in equity markets, and most of the time, they lose their money by picking the wrong equity shares or bonds.

By spreading investments among a variety of equity shares and debt instruments, mutual funds, as intermediaries, provide expertise in portfolio management. As a result, investors earn good returns at low risk, as opposed to high returns if they invest directly in the capital market.

Mutual funds are collective reservoirs or pools of funds managed by qualified and experienced fund managers. An investment trust invests funds from several investors who have a common investment goal in equities, bonds, money market instruments, and other securities. As a scheme’s ‘Net Asset Value’ or NAV, is calculated, its income is divided proportionately among its investors after subtracting relevant expenses and levies. A mutual fund scheme allows units based on the money pooled in by many investors. Depending on the performance of the investments, the pooled money will grow or decrease. The NAV will reflect this.

Investing in mutual funds is an excellent choice for those who lack the time and knowledge to research the market but would like to grow their wealth. For their expertise, the fund house charges a small fee that is deducted from the investment. The Securities and Exchange Board of India (SEBI) limits a mutual fund’s fees. Mutual funds have gained favoritism over the past few years when investors have regularly invested through them in equity/balanced schemes.

Let’s dive into why Mutual funds are popular and what makes them a preferred money management instrument.

Features and Benefits of Mutual Fund Investments

Mutual funds are managed by a professional asset management company known as an AMC through fund managers who actively manage the investment portfolios of various mutual fund schemes, which deliver the following benefits to investors:

(1) Portfolio Diversification

You can diversify your portfolio of financial instruments, even with a small investment, by investing in mutual funds.

(2) Low-Risk

Investments can be diversified even with a small amount of money. It is riskier to invest directly in only two or three shares or bonds than to invest in a mutual fund scheme with a diversified portfolio.

(3) Low Transaction Costs

Mutual funds incur lower transaction costs due to economies of scale. Investing in these benefits investors as well.

(4) Liquidity

During mutual fund redemption, ECS payments credit funds directly to an investor’s account.

(5) Choice

Investors with diverse investment objectives can choose from various mutual funds. As a result, investors have plenty of choices when selecting a scheme that matches their financial goals. Furthermore, these schemes offer a variety of options, such as dividends, growth, reinvestment, etc.

(6) Transparency

Investors are provided with market and scheme information by funds. According to SEBI and AMFI guidelines, all material facts are disclosed to investors. Daily NAV updates are sent to investors.

(7) Flexibility

Investors can also benefit from the flexibility provided by mutual funds. The systematic transfer plan (STP) allows investors to transfer units between debt schemes and equity schemes. A monthly or quarterly installment plan (SIP) and a systematic withdrawal plan (SWP) are also available in open-ended schemes.

(8) Safety

Under SEBI rules, the mutual fund industry is fully regulated, safeguarding the interests of investors. Registration of all funds with SEBI ensures complete compliance with the rules and transparency.

(9) Professional management

Professional managers manage mutual fund portfolios based on their knowledge and experience of companies’ performance and prospects. Unlike retail investors, they actively manage portfolios through close monitoring daily.

Mutual Funds as the instrument for Tax Planning

Stock market investments with mutual funds are one of the best. As well as offering inherent diversification by investing in a variety of different companies, they produce returns that outperform traditional investments. 

Investments in equity-linked savings schemes are deductible from your total income for the year if you make them according to section 80C of the Income Tax Act, 1961.

The amount of Rs. 1 lakh you invested in an ELSS during the 2021-2022 financial year can be deducted from your total income. 

A maximum of Rs. 1.5 lakhs can be claimed as deductions in a year, according to the section.

In addition to tax benefits, ELSS investments offer other advantages. Long Term Capital Gains (LTCG) are the profits you receive at the maturity of an Equity Linked Savings Scheme. Taxes on LTCG are flat at 10%. 

Generally, long-term capital gains exceeding Rs. 1 lakh in a given year are only subject to taxation under the Income Tax Act, of 1961. Your LTCG will not be taxed if it is less than Rs. 1 lakh. Tax will only be charged on excess amounts over Rs. 1 lakh, even if they exceed Rs. 1 lakh. 

Best Performing Mutual Funds for your tax planning for 2022-23

The following are the top-performing ELSS funds with high returns in the last 5 years.

Fund NameFund SizeReturns Per Annum
Quant Tax Plan₹2,127 Crs34.38
IDFC Tax Advantage (ELSS) Fund₹3,986 Crs0.2165
Canara Robeco Equity Tax Saver Direct-Growth₹4,407 Crs0.2165
Mirae Asset Tax Saver Fund₹13,546 Crs0.2059
PGIM India ELSS Tax Saver Fund₹437 Crs0.2007

Conclusion 

A mutual fund is a financial intermediary that pools collective investments in equity and debt instruments from both retail and corporate investors and manages a portfolio of various schemes that invest these collective investments on the investors’ behalf. Mutual funds are one of the most optimum money management instruments due to their flexibility, professional management, ability to work as a tax planning instrument giving out good returns and many more.

Rurash Financials offers tax planning services, along with helping you create a bespoke and optimum investment plan for you, for not just investing in Mutual Funds and Equity but also in the hottest investment opportunities in pre-IPO or unlisted shares, corporate bonds, corporate fixed deposits, and more.

Rurash Financials is one of India’s leading investment management firms, providing financial solutions to augment the client’s wealth and facilitating the building of a purposeful legacy.

For any assistance regarding financial instruments, Contact our relationship manager now on Call at +91 22 4157 1111 or write to: invest@rurashfin.com,