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Mutual Funds: How to grow your wealth using mutual funds

A mutual fund is one of the most popular investment vehicles in India. It is most preferred by individuals looking to invest in the stock market at a relatively low risk. It is managed by a professional fund manager, who takes money from multiple investors to invest in equities, bonds, and other securities.

The Indian Mutual Fund Industry is regulated by SEBI and has seen exponential growth over the past decade. A few factors affecting the growth of this industry are:

Rising Investor Awareness
Rise of Retail Investors
Adoption of SIPs

Over the past decade, Equity mutual funds, which invest in stocks have higher returns at a cost of higher risk due to market volatility. Different segment reports in equity mutual funds are as follows:

Large Cap	12-15% CARG Return	Low Risk
Mid Cap	18-22% CAGR Return	Medium Risk
Small Cap	20-23% CAGR Return	High Risk

The mutual fund market in India offers a range of products, such as:

Equity Funds
Debt Funds
Hybrid Funds
Sector Specific Funds

How does a financial advisor help you to invest in a mutual fund?

A financial advisor can help you grow your wealth using mutual funds by helping you create a personalized investment strategy. They assess your financial goals, risk tolerance, and time horizon, which help you to choose the right mix of investment products that align with you objective.

There are several types of funds that can be suggested based upon your goal, risk levels, and time. A financial advisor also monitors and rebalances your mutual fund portfolio. They keep tracking your investment performance and make necessary adjustments. It helps in maximizing returns with effective risk management.

By participating with a financial advisor, you can achieve your wealth growth with more confidence, knowing that your investments are in the expert's hands.

How do Mutual Funds Work?

Mutual funds pool money from multiple investors to invest. Then they invest in a diversified portfolio of assets such as stocks, bonds, and other money market instruments. Each investor buys units of these funds, representing a proportionate share of the fund’s holding.

These funds are managed by professional fund managers who make decisions about which security to buy, hold, or sell based on the fund’s investment objective. The value of the mutual fund is determined by the Net Asset Value (NAV), which is calculated by dividing the total value of the fund’s asset by the number of outstanding units. The NAV fluctuates based on the market value of the underlying assets.

Types of Mutual Funds:

Indian Mutual Fund Industry offers a variety of funds to invest in with different needs and requirements. A brief few of these mutual funds are:

Equity Funds: These are suitable for investors with higher risk and long-term investment planning. Three Subcategory within Equity funds are:

Large-Cap
Mid-Cap
Small-Cap
Sector-Specific funds

Debt Funds: These funds offer stable returns with lower risk. They’re best suited to risk-averse investors and individuals seeking passive income. Three Subcategory within Debt funds are:

Liquid Fund
Short-Term
Long-Term Debt Funds

Hybrid Funds: These funds offer moderate returns with lower risk compared to pure equity funds. A few examples of these funds are:

Balanced Funds
Aggressive Hybrid Funds
Conservative Hybrid Funds

Tax-Saving Funds (ELSS): These funds offer tax benefits under Section 80C of the Income Tax Act. They invest in equity and have a lock-in period of three years, providing tax savings and potential capital appreciation.

Index Funds: These funds replicate the performance of a specific market index, such as the NIFTY 50 or Sensex. They offer diversification and lower management fees, making them a cost-effective option for investors.

Sectoral/Thematic Funds: These funds invest in a specific sector, such as technology, healthcare, or infrastructure. They offer high returns if the sector performs well at a cost of higher risk due to a lack of diversification.