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If you are looking to invest in a <keyword id="6354820" type="ORGANIZATION" weightage="20" keywordseo="mutual-fund">Mutual Fund</keyword> (MF), you will find one that will match your needs but with so many companies, each with so many schemes, it will be a difficult journey to find one that fits the requirement. 
 
Here, we will focus on a few parameters that will help you in choosing the right mutual fund for investment depending on an individual’s requirements. 
 
Ø Identify the objective: Like stated before, there is a right kind of mutual fund for everyone and every need. So, the first thing one needs to do is identify their objective for <keyword id="35175" type="UNKNOWN" weightage="20" keywordseo="investing">investing</keyword> in the mutual fund. This can be based on the timeline for investment (short or long term) or the financial goal. For instance, if Asha is looking to invest in a mutual fund to save tax; an Equity Linked Savings Scheme (ELSS) will suit her requirements, while Mr. Mehta is looking for a regular flow of income so for him a Monthly Income Plan (MIP) is required. So the first step is to be sure about the reason for investing in a MF so that you can focus on that segment and choose a scheme that suits you best. You can have multiple funds to satisfy one objective or different fund to meet different kinds of goal. 
 
Ø Asses your Risk Appetite: Mutual funds are managed by professionals and generally these professionals base their decisions on extensive research. However one cannot forget the MFs are market linked products which means they are susceptible to market risk and they do not have guaranteed but have indicative returns. So before choosing a scheme it is important to understand if it matches your objectives and whether it matches your risk appetite also or not. Equity funds are high risk and high returns, while debt funds lie on the other end of the spectrum. Balanced funds as the name suggests lie somewhere in between. Generally those in advanced years do not prefer equity oriented schemes while the younger investors can afford to invest in equity funds and take some risk. 
 
Ø Focus on History: As stated earlier, MFs are market related instruments so there can be no guaranteed returns. Even for debt funds the returns are indicative; so how does an investor decide if the fund will deliver what it promises in terms of returns? This can be assessed to an extent by looking at the past performance which can be indicative of the expected future returns but again there is no surety that in the future also a similar pattern will be followed. Looking at the past returns can help in assessing a trend that a mutual fund follows in terms of returns. 
 
Ø Use Statistics: Apart from returns, certain other numbers are also important when choosing the right mutual fund. Alpha is one such indicator; it is a measure of MF’s performance on a risk adjusted basis and as compared to the benchmark. A positive alpha indicates that the fund is doing well. Beta is the measure of fund’s volatility as against the benchmark. It measures the fund’s sensitivity to changes in the market. For an investor with low risk appetite a fund which has a beta value less than one is the right choice and the opposite is true for those are willing to have a bigger risk appetite. Standard deviation in terms of a MF will indicate its volatility; how much the returns deviate from the expected returns calculated based on the past performance. An investor should also keep an eye on the various costs that he/she incurs as these costs ultimately impact the overall profitability of a mutual fund. 
 
Ø Pedigree is Important: Another factor that one should focus on while selecting a mutual fund is the fund house that is promoting it and who the fund manager is. Choosing a well known and experienced fund house will ensure that they will not indulge in unethical practices or will go bust while leaving you in the lurch. A fund manager decides which instruments or securities to invest in so an experienced and knowledgeable fund manager will ensure that you get good returns on your investments. Being preemptive and not reactive is what distinguishes a good fund manager from an average one. 
 
The above factors can hopefully help you in choosing the right mutual fund for yourself which not only helps you in meeting your financial goal but is also a safe and profitable investment. 
 
(Rajiv Raj is the Director and Co-Founder of www.creditvidya.com) 
 
(Image: ThinkStock)

Here are 5 ways that will help you zero on the right mutual fund

Proponents of passive investing will argue that just buying a Nifty 50 index fund and liquid fund is good enough. But it is good to diversify your investments across securities, asset classes, and types of stocks based on risk appetite, saving needs, and future goals. However, quite often, small investors find their money parked in one too many mutual funds. What is the optimal number of mutual funds to have in your investment portfolio? A five-fund portfolio that takes care of all your needs, according to investment advisory firm Kuvera. Over time, it will become incredibly hard to manage and rebalance your portfolio and make any changes to it. New investors should be aware of this and take proactive steps to not let their portfolios grow to too many funds. The only argument to add multiple funds is if there is minimal stock overlap – so invest in a Nifty 50 fund, a Nifty Next 50 fund, a value biased fund, an international fund and one debt fund. This is the ideal mix according to Kuvera. Just following the below rules will bring down the number of funds in your portfolio to 4-8 funds: 1. Only one scheme per Equity sub-category (e.g one large cap scheme). 2. If you are investing in market cap schemes (large, small, mid etc) then don't have a multicap scheme. 3. Avoid investing in Sector or Thematic schemes. Sector outperformance is notably hard to predict. 4. Invest in one fixed income scheme (debt or liquid). That's right, just one liquid scheme is enough. Take risk on the equity side of the portfolio. 5. If you have both equity and debt schemes then don't have balanced and hybrid schemes. Gaurav Rastogi is the CEO and co-founder of Kuvera.in, a direct <keyword id="6354820" type="DEFINITION" weightage="20" keywordseo="mutual-fund">mutual fund</keyword> investing platform

A common mistake mutual fund investors make⁠ can be fixed through five simple steps

Gold has always been the safest option for investors. Over the last few years, gold has always reported a significant growth rate in prices. However, during the recent periods, gold has witnessed a fumble in prices. The pace in which gold prices has stumbled down during the recent times show us that we need to take a careful decision while choosing to invest in gold. The bottom line Due to the trends noticed in gold prices, <keyword id="6357979" type="UNKNOWN" weightage="20" keywordseo="mutual-funds">mutual funds</keyword> has once again come up in the chart as a preferred form of investment. One of the advantages of investing in mutual funds is that they mitigate risks by distributing the investment across a wide spectrum of industries. At the same time, unlike investing in gold, investing in mutual funds requires a great deal of planning and vigilance on the part of the investor. Here we discuss the various pros and cons of investing in gold and mutual funds to learn how to make the right decision. Risks involved Transporting and storing gold carries the risks of theft and burglary. However, this can be mitigated while investing in gold ETFs. Mutual funds do not present such risks. Mutual funds can be bought and sold safely online. Trading For buying and selling gold, you do not pay any charges. There is no documentation involved and there are no intermediaries required. The process of buying and selling mutual funds involves intermediaries, entry and exit charges and documentation. Gold investment cannot encash the highs that happen in the market. It does not earn anything to the investor periodically and it does not pay any dividends. Mutual funds ride both the bull and bear to fetch substantial returns to the investor. Variations There are no variants in gold accepting the quality standards like 24K gold and 22K gold. 24K gold is always expensive than 22K gold. Mutual funds have a lot of variants based on the kind of funds you choose. Hence it is very much essential that you choose the right option that will suit your investment hunger. Liquidity Gold investment is characterized by a high degree of liquidity. You can trade gold anywhere and anytime. Mutual funds also carry a considerable degree of liquidity as you can encash your mutual fund at the present Net Asset Value. However, you can sell them only in particular segments of the market. It is not possible to sell mutual funds to anyone and anywhere. Market knowledge You need not be vigilant or knowledgeable about the market when you invest in gold. Even a layman can invest in gold and get substantial returns if the investment is done over the long term. Mutual fund investment will demand that you remain on your toes all the time. If you want to make profits through mutual funds, you must be smart to respond to the trends in the money market. Stability Gold cannot resist the fluctuations in the market. Irrespective of the temporary fluctuations, the value of gold tends to go up in the long run. Mutual fund is a dynamic product that always rides on the highs and lows of the market and hence it can never be viewed as a stable avenue for investing. Conclusion Neither gold nor mutual funds is a clear winner. The decision to choose either gold or mutual funds must take into account the factors discussed above so that your investment serves its intended purpose.

Mutual Funds Vs Gold: which is better for Investment

Table of Contents: Masthead Sticky<ul class="summary-list"><li>You can start investing in <keyword id="6357979" type="UNKNOWN" weightage="60" keywordseo="mutual-funds" source="Orion">mutual funds</keyword> through goal planning and choosing between active or passive investing strategy.</li><li>Mutual funds are typically actively managed, but there are passive mutual funds like index funds.</li><li>When you invest in mutual funds be aware of sales loads and expense ratios fees, which can add up.</li></ul>Investing your money can help you turn one dollar into many more, giving you the ability to build wealth without having to work harder. Thanks to compound interest and a variety of investment vehicles, you can decide where to put your money. One type of investment vehicle that can help diversify your money is a <a href="https://www.businessinsider.com/mutual-funds" target="_blank" rel="noopener">mutual fund</a>, which gets money from investors and pools it together into a fund. These funds invest in various securities like <a href="https://www.businessinsider.com/what-is-stock" target="_blank" rel="noopener">stocks</a>, <a href="https://www.businessinsider.com/what-is-a-bond" target="_blank" rel="noopener">bonds</a>, and short-term debt. Mutual funds are often actively managed, but not always. Here's how to get started investing in mutual funds. <h2>Step 1: Look at your finances and goals</h2>Before you get started with investing in mutual funds, it's important to first review your current income, expenses, monthly debt obligations, and <a href="https://www.businessinsider.com/what-is-net-worth" target="_blank" rel="noopener">net worth</a> to see where you're at financially. You wouldn't build a house without laying a proper foundation - and the same goes with your finances. Having an emergency fund and manageable debt are important if you want to invest. Why? Because investing is risky, no matter how you look at it. There are ways to minimize your risk by figuring out your risk tolerance, but it's crucial you have that financial foundation and safety net set up. Knowing where your finances are at now can inform how much you can afford to invest and what your asset allocation should be based on your risk tolerance. On top of that, consider your short- and long-term goals when investing, too. Will this be used for a down payment in five years? Or for your retirement in 30 years? Knowing your goals and having a rough timeline can ensure that you stay on track and know why you're investing in the first place. <h2>Step 2: Research types of mutual funds </h2>According to the <a href="https://www.businessinsider.com/securities-and-exchange-commission" target="_blank" rel="noopener">Securities and Exchange Commission</a> (SEC), a mutual fund is an open-end investment company that is registered with the SEC and gathers money together from various investors to put into asset classes like stocks, bonds, and more. When you invest in mutual funds, you end up purchasing shares of the mutual fund that reflects partial ownership of the total portfolio. "Mutual funds are baskets of various stocks with a common theme behind them, such as 'US Equities Growth Fund' or 'Sustainable Developed Markets Fund.' They usually have a net asset value, which is determined once per day, unlike stock prices that fluctuate during the day in the markets," explains Gary Grewal, a Certified Financial Planner and author of "<a href="https://www.financialfives.com/" target="_blank" rel="noopener">Financial Fives: The Top 325 Ways to Save, Earn, and Thrive to Retire Before 65</a>." There are many different types of mutual funds that you can invest in:<ul><li>Stock funds: These invest in a company's stock. There are some nuances within stock funds, including those that focus on investing in a company's stock, growth-focused stocks based on financial returns, income-focused stocks that produce <a href="https://www.businessinsider.com/ex-dividend-date" target="_blank" rel="noopener">dividend payouts</a>, stock funds based on certain sectors, as well as index funds that track specific indexes and seek to produce similar results. </li><li>Bond funds: This is a type of investment company that's focused investing in bonds and debt securities. The risk related to bonds can differ depending on the bond. As an investor, <a href="https://www.sec.gov/reportspubs/investor-publications/investorpubsinwsmfhtm.html" target="_blank" rel="noopener">the SEC recommends</a> that you consider the credit risk if the bond issuer fails to pay back debt, how interest rate fluctuations will affect the value of a bond fund, as well as prepayment risk and what will happen if the bond issuer pays back the bond earlier than anticipated. </li><li>Money market funds: These have the least risk and invest only in particular investments that are issued by the US government or corporations. </li><li>Target-date funds: These contain a combination of stocks and bonds that aim to help you retire by a certain date, called target-date funds. They can also be referred to as lifecycle funds as well. The asset allocation will shift over time depending on the overall goal. </li></ul>In many cases, mutual funds are actively managed by an investment professional. But it's possible to invest passively in mutual funds as well, typically called an index fund. Also: mutual funds can be index funds - and vice versa. Actively managed mutual funds work with a professional manager whose main goal is to help you beat the market. They do much of the heavy lifting when it comes to choosing securities to invest in and review the performance. Passively managed funds like index funds have an objective to match the results of a particular index and don't have a professional manager. As such, it's a <a href="https://www.businessinsider.com/passive-investing" target="_blank" rel="noopener">passive</a> way to invest as there's no outside help. No outside help typically means lowers costs. In order to diversify your investments, you'll want to invest in various types of mutual funds and not just one type in a specific sector. Quick tip: Target date funds are easily recognizable as they typically include the target date, such as the <a href="https://fundresearch.fidelity.com/mutual-funds/summary/315792416" target="_blank" rel="noopener">Fidelity Freedom 2050 Fund. </a><h2>Step 3: Choose a passive or active strategy </h2>After researching the various types of mutual funds out there, you want to be clear about whether you want to have a passive or active strategy. Actively managed mutual funds are costlier, as they are rife with fees, can take a chunk out of your investments, and may also lead to tax events. For example, there may be mutual fund distributions that you need to report and pay taxes on. When you invest in mutual funds, you can get capital gains distributions as well as dividend payments. This could be a good thing, but there may also be tax implications. Depending on what your mutual fund manager does, it could lead to higher taxes because of the difference in holdings. When you sell an asset, you're expected to pay <a href="https://www.businessinsider.com/what-are-capital-gains" target="_blank" rel="noopener">capital gains taxes</a> if you hold the asset for longer than a year and there is an increase in value. If you hold it less than that, you'll be taxed at the ordinary income rate, which is higher (which can be up to 37% compared to 20%). Passively managed mutual funds, such as index funds, seek to replicate market returns of a particular index, such as the ever-popular <a href="https://www.businessinsider.com/what-is-the-sp-500" target="_blank" rel="noopener">S&amp;P 500</a>. They are more affordable for investors since there are lower fees as there's not an entity that is managing the investment, as you're managing it yourself. "Active funds typically come with higher expense ratios and may even come with a sales charge. Active means there are human portfolio managers whose job is to manage the investments within the mutual fund to try and beat the market," explains Grewal. In many cases, actively managed funds <a href="https://www.sec.gov/reportspubs/investor-publications/investorpubsinwsmfhtm.html" target="_blank" rel="noopener">don't actually outperform passively managed funds</a> in the long run. "Multiple studies have shown over time it's very hard to beat the market, so passive funds such as those that track the S&amp;P 500 Index may be a better choice for those concerned about fees, as passive funds have expense ratios that are typically much lower than their active counterparts," says Grewal.To consider the impact and costs you can use the <a href="https://tools.finra.org/fund_analyzer/" target="_blank" rel="noopener">Fund Analyzer tool</a> by the <a href="https://www.businessinsider.com/finra" target="_blank" rel="noopener">Financial Industry Regulatory Authority</a>, or FINRA. You can also look at the mutual fund's <a href="https://www.businessinsider.com/prospectus" target="_blank" rel="noopener">prospectus</a> to get a breakdown of fees, risks, and overall performance. For both active and passive mutual funds, you also want to consider the <a href="https://www.businessinsider.com/what-is-expense-ratio" target="_blank" rel="noopener">expense ratio</a>, which includes costs related to managing your account. <h2>Step 4: Invest in mutual funds </h2>After researching types of mutual funds and choosing a strategy, you want to get started investing in mutual funds. "One can easily invest in mutual funds via their workplace retirement plan, IRA, or opening a brokerage account through Fidelity, Schwab, and Vanguard," notes Grewal.When you invest in mutual funds, you purchase shares from a <a href="https://www.businessinsider.com/what-is-a-brokerage-account" target="_blank" rel="noopener">brokerage</a> or from the actual fund. How much you end up paying will vary based on the sales charge or sales load as well as the fund's net asset value per share. You may be able to invest in mutual funds that don't have a sales load associated with them as well.Related Article Module: The best online brokerages for investors of all kinds, from kids to prosTo get started, choose a brokerage or company to invest in mutual funds. You can check out some popular options such as <a href="https://www.businessinsider.com/personal-finance/fidelity-investments-review" target="_blank" rel="noopener">Fidelity</a>, <a href="https://www.businessinsider.com/personal-finance/vanguard-investing-review" target="_blank" rel="noopener">Vanguard</a>, <a href="https://www.businessinsider.com/personal-finance/charles-schwab-brokerage-account-review" target="_blank" rel="noopener">Charles Schwab</a>, and <a href="https://www.businessinsider.com/personal-finance/etrade-investing-review" target="_blank" rel="noopener">Etrade</a>. Before opening an account, be sure to review the prospectus and any fine print and also consider:<ul><li>Any account minimums required</li><li>Usability of website and mobile app options</li><li>Funds that are available</li><li>Total costs such as sales load and expense ratio</li></ul>After you open an account with a brokerage, deposit money into the account and then select the mutual fund you want to buy and purchase shares. Create a plan to add funds on a regular basis, such as each month, and review your performance as you go to see if any changes should be made. Quick tip: Make sure to do some research to better understand how your various mutual fund types relate to your goals and time horizon. Focusing too much on stock funds for a short-term goal may not be the best idea. <h2>The financial takeaway</h2>If you want to get started investing in mutual funds, the main things to be aware of are active versus passive strategies and the costs that can come with each choice. Your choice will determine how much you pay and also if you take a hands-on or hands-off approach. Investing in mutual funds can be an easy way to diversify your portfolio and also offer a straightforward redemption process if you want to redeem your shares.<a data-type="613a2035b0b35f5c695cf174">5-step beginner's guide to investing in index funds</a><a data-type="6149f6636bf54a3a6e5d45a2">A CFP is an advisor armed with extensive education and ethical standards to help you manage your money</a><a data-type="61489feb0c828c3fa9191f4a">Understanding what qualified dividends are why they're taxed at lower rates</a><a data-type="5fc16917647950767646fd31">How to invest in dividend stocks, a low-risk source of investment income</a>

Start investing in mutual funds in 4 steps

Selecting a mutual fund is like selecting any other investment and you should follow an objective decision framework. You should start by answering the following questions. 
 
Step 1: Deciding on <keyword id="35475" type="UNKNOWN" weightage="20" keywordseo="equity-funds">Equity funds</keyword> vs. <keyword id="35474" type="COMPANY" weightage="20" keywordseo="debt-funds">Debt funds</keyword> 
This decision is essentially a decision to invest in Equities vs. Debt rather than being a mutual fund selection. The key elements in this decision are: 
· What’ your investment objective? 
Is it income or growth? If you’re looking for income, then go for debt. For growth, you could choose either equity or debt depending on your investment duration &amp; return expectation. 
· What kind of return do you want/ need? Your return could be in the form of a fixed returns or capital growth (with uncertainty). If you are looking for fixed returns, <keyword id="6357979" type="ORGANIZATION" weightage="20" keywordseo="mutual-funds">mutual funds</keyword> are completely ruled out. 
· What’s your investment duration? How fixed is this investment duration? 
Are you investing for 1 year, 5 years, 10 years or longer? Debt funds are better for shorter durations (5 years or less), Equity Funds for longer. IMPORTANT: Do not confuse investment duration with review period. Choose the asset class based on when you will need the money (investment duration) for example: 20 years. However, you should review your specific <keyword id="6362476" type="ORGANIZATION" weightage="20" keywordseo="investments">investments</keyword> within that asset class more often (Review period), say every year. 
· How much return do you expect? Does historical data justify it? 
A number of investors choose an asset class with unrealistic expectations of 20% or 30% returns. The long-term average return for debt is in the region of 9% and equity is in the region of 16%. Each of these comes with varying degrees of uncertainty or risk. 
· What are the risks? Are they in line with your objective &amp; return expectation. 
The variation of return in debt is usually small. A long-term average of 9% implies a band of 8-10%. This means that there is a high degree of certainty that you’d get returns of near the long-term average. The risk of capital loss is also very low. 
On the other hand equity returns vary in a broad range. The range narrows with holding period, but there is always a wide band. There is also a high risk of capital loss due to this. 
In a simplistic way the decision between equity &amp; debt is the decision between almost certain 9% return and an uncertain 16% return. 
· What is the tax applicable on the return you get? 
Interest is added to your income and gets taxed at whatever your tax slab is (10%, 20% or 30%). 
Debt funds held for less than a year get taxed at your tax slab; for more than a year get taxed at 20% with inflation indexation. 
Equity funds held for less than a year get taxed at 15%; for more than a year have zero income tax. 
Then there are tax saving equity funds (ELSS), which have a lock in for 3 years, but save you tax in the year in which you invest. 
(Note: This is a broad generalization of tax applicability and not tax advice.) 
Step 2: Selecting a specific mutual fund 
· Understand the capability of the <keyword id="109711" type="POSITION" weightage="20" keywordseo="Fund-manager">fund manager</keyword>, their investment process and track record 
The performance of a mutual fund is ultimately the outcome of the Fund Manager’s expertise and their investment process. The two are designed to complement each other. 
All funds are required to publish the resume of the fund manager. The fund managers also write articles and give interviews that reflect their thinking and the investment process they follow. You can also understand this by evaluating the risk reward characteristics of the mutual fund and things like portfolio churn. 
A good investment process is an indicator of repeatable performance. 
· Analyse performance over a reasonable period 
Very often investors are misled by recent (usually last 6 months or one year) performance of a fund. You need to analyse performance over at least 4-5 years. Also look for consistency of performance by comparing different period returns. Always remember that past performance may not be repeated. 
· Decision on picking a thematic or sectoral fund vs. diversified funds 
Themes and sectors limit the universe of stocks available to a fund manager. Choose these if you fully understand the economic conditions and their applicability to a specific sector. You must also carefully watch for changes in these conditions. 
· Focus on facts and data rather than brand names 
An investor must be diligent in researching and analyzing data. This also involves ignoring personal preferences, uninformed recommendations, advertising and brand names. Let the track record speak for itself. 
Step 3: Re-confirm that you understand how your specific chosen mutual fund works. 
· Read the offer documents 
· Understand investment/ redemption limitations if any 
· How can you invest? How can you withdraw? 
· Cost and load structure- A load is a percentage charged by the fund to recover distribution costs. This may be charged at entry (Entry Load), exit (Exit Load) or over the life of the investment. 
 
(The next lesson on this series will be: How do I invest in mutual funds? How much does it cost me? 
If you would like to learn more, stay tuned.) 
 
(About the author: This article has been contributed by Sanjiv Singhal, CEO, <a href="http://scripbox.com/" target="_blank">scripbox.com</a>.)

Investor series: 3 easy steps that will help you choose the right mutual fund to invest in

<ul><li><keyword id="8536595" type="UNKNOWN" weightage="20" keywordseo="Tata-Quant-Fund">Tata Quant Fund</keyword> is India’s first fund that claims it can beat the market using artificial intelligence by cutting out human bias. </li><li>Business Insider spoke to <keyword id="1124629" type="PERSON" weightage="20" keywordseo="Utpal-Sharma">Utpal Sharma</keyword>, the Head of Business Analytics at Tata Asset Management about how the fund works and how it would react in case of unpredictable events — like wire.</li><li>Sharma also explains why the Tata Quant Fund doesn’t use National Language Processing (NLP) and what the main challenges are in using AI for predicting the market.</li></ul>Your next mutual fund might be managed by an AI algorithm instead of a man in a suit. But it is not a very new concept. In fact, there are already plenty of funds using AI in the US and Europe. India is joining the trend with <keyword id="1515303" type="COMPANY" weightage="20" keywordseo="Tata-Mutual-Funds">Tata Mutual Funds</keyword> launching its first AI-driven quant fund based on the BSE 200 index. Instead of having fund managers analyse market trends to pick the best stocks, a combination of rule-based algorithms picks the winners and losers. Some, like the $54 billion Pangora Asset Management Quant Fund, even use natural language processing (NLP) to keep tabs on traders to predict upcoming market trends. "We have tried that, we didn’t get much of a lift from using that data. So, currently, we are not reading opinions and we’re not reacting to events. We have got structured data in place and making calls based on that structured data," Utpal Sharma, the Head of Business Analytics at Tata Asset Management told Business Insider. But, human intervention comes with its own set of advantages like experience, the ability to understand complex problems and instinct. And, Indian markets — since they are a part of a developing economy — can sometimes be unpredictable. "In our structure, though we are machine-driven, we have a fund manager. In the event of something seriously very different from what has happened in the past years occurs — like a war — he can intervene," explained Sharma. Why do we want to remove human judgement? One of the primary reasons to use AI to beat the market is to remove human bias from affecting choices. But it’s not that easy to measure what needs to be left out. "It’s very hard to pinpoint how human biases impacted what performances by quantum. That’s not something that we measured. We definitely think if you do it in a systematic manner where you are eliminating judgements which are not completely objectively, which are not non-deterministic," said Sharma. Using AI to beat the market Tata Mutual Funds plans to use artificial intelligence (AI) and machines learning (ML) to beat the market. It is India’s first mutual fund to offer an AI-driven investment strategy. Even though the fund may not know how to react to a situation like an unexpected war, that’s not a day-to-day occurrence. For normal events like policy changes, budget declarations and earnings, the model is geared to predict how the market will react — and figure out how to beat it. It relies on data from the past 22 years to forecast how the market will move and they claim that they’ve been testing the model since 2011. "Yes [it will beat the market]. So our index is the BSE 200. Our objective would be to deliver better results than the index. The index itself has generated around — from January to December — 10.25 per cent. Our objective is to do better than those returns," he said. However, not every quant fund is a story of success. The AI Global Equity Fund managed by Aberdeen Standard Investment underperformed in comparison to the market. The explanation offered by the fund manager was that financial market data is finite and that algorithms can only learn so much from past data. "We got two models. One which chooses the best portfolio to invest in, in the coming period. Another model which predicts whether the absolute direction is positive or negative. When we combine them, we have the ability to participate in uptrending markets while avoiding markets which are headed downwards," said Sharma. The model makes its predictions on a monthly basis and is retrained every six months, learning from past events. "We have tried this for different frequencies of relearning and tweaking the model based on recent data. We found that when we take six months incremental data and rebalance or readjust our models, that when we see the best results," explained Sharma. See also: <a href="https://www.businessinsider.in/tech/news/artificial-intelligence-in-2020-needs-to-be-about-ethics-in-india/articleshow/72935214.cms">Rise of the machines: 2020 will be a good year for India to teach AI some ethics</a> <a href="https://www.businessinsider.in/tech/news/india-wants-to-be-on-the-cusp-of-artificial-intelligence-but-lacks-the-laws-to-back-it-up/articleshow/72349825.cms">India wants to be on the cusp of artificial intelligence but lacks the laws to back it up</a> <a href="https://www.businessinsider.in/tech/enterprise/news/5g-airports-ai-powered-safe-cities-and-many-more-that-huawei-has-on-offer-at-the-india-mobile-congress-2019/articleshow/71591351.cms">5G airports, AI-powered safe cities and many more that Huawei has on offer at the India Mobile Congress 2019</a>

Exclusive: Here's how Tata's new AI-driven mutual fund plans beat the market and how it will react if a war breaks out

By the term ‘Mutual Funds’, we mean the money pooled out through the contribution of many investors who intend to save and make money through their investments. The corpus thus created with the investment of these individuals is then invested in different categories namely debt funds, liquid assets and others. The individuals investing in mutual funds have to share the profits and losses equally in proportion to the value of their contribution to the corpus of the mutual funds. Here are the different kinds of mutual funds in India. <keyword id="6354820" type="DEFINITION" weightage="20" keywordseo="mutual-fund">Mutual fund</keyword> types based on asset class Equity funds Equity funds are those that are invested in stocks or shares of different companies. Since these investments can provide higher results, they are also called as high risk funds. Debt funds Debt funds are those that are invested in debt such as government bonds, fixed income assets and company debentures. These are considered as safe investment options since they provide fixed retruns to the investors. Money market funds Money market funds are those that are invested in liquid instruments. Some examples to this type are CPs and T-bills. These are also deemed as safe investment options since you will get an immediate return on your investment though the returns might be moderate. Balanced or hybrid funds Hybrid funds also called as balanced funds are invested in different kinds of asset classes. When the proportion of debts are found lower than the equity or when the equity is found lower than the proportion of debts, this kinds of funds enable striking a balance between risks and returns. Sector funds Sector funds are those kinds of investments in which the investor chooses to invest in a particular sector or the division of the market. For example, infrastructure fund investors invest in sectors confined to the infrastructure. They might also choose the investment instruments offered by the infrastructure companies. Returns on sector funds investments are directly related to how the given sector performs. The risk factor with regard to these investments vary between sectors. Index funds Index funds are investment tools that represent a specific index on the stock exchange for the purpose of monitoring the returns and how the index moves. In other words, it is like purchasing shares from the BSE Sensex. Tax-saving funds Tax-saving funds are those that are invested predominantly in equity shares. Tax-saving funds enable an investor to claim the tax deductions under the income tax act. The risk factors that are involved in such kinds of investments are very high. Also, in case these funds perform well, higher returns are possible. The tax saving aspect is one of the major attractions connected with these kinds of investments. Those that are willing to take high risks for the sake of inviting higher returns prefer this model. Funds of funds Funds of funds are those that are invested in other mutual funds. The returns on such investments depend on how the target funds perform on the whole.

Different types of Mutual Funds that you can buy in India

<ul><li>Indian markets have had a volatile one year with Nifty clocking gains of about 10% in the one year ending June 30, 2019.</li><li>While six equity mutual funds performed better than the benchmark, only one of them manged to clock double the growth rate.</li><li>3 of the top 20 equity funds, by assets under management, showed a loss in investor wealth.</li></ul>Indian markets have had a volatile one year with Nifty clocking gains of about 10% in the one year ending June 30, 2019. Only six mutual funds performed better than the benchmark. And only one of them, the ICICI Pru Value Discovery Fund, managed to clock double the growth rate compared to Nifty and Sensex. The following is the list of top 20 schemes in descending order of assets under management at the end of June 2019, and the change in value compared to June 30, 2018. <table style="width: 400pt;"> </colgroup></colgroup> <tbody><tr> <td class="xl67" style="height:31.5pt;width:200pt">Rank</td> <td class="xl68" style="border-left-width: initial; border-left-style: none; width: 200pt;">Gains in the last one year</td> </tr> <tr> <td class="xl69" style="height: 30pt; border-top-width: initial; border-top-style: none; width: 200pt;">Kotak Standard Multicap Fund </td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">10.80%</td> </tr> <tr> <td class="xl69" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 200pt;">HDFC Equity Fund </td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">18.30%</td> </tr> <tr> <td class="xl69" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 200pt;">SBI Blue-Chip Fund </td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">7.80%</td> </tr> <tr> <td class="xl69" style="height: 30pt; border-top-width: initial; border-top-style: none; width: 200pt;">HDFC Midcap Opportunities Fund </td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">-0.90%</td> </tr> <tr> <td class="xl69" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 200pt;">ICICI Pru Blue-Chip Fund </td> <td class="xl71" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">9%</td> </tr> <tr> <td class="xl69" style="height: 30pt; border-top-width: initial; border-top-style: none; width: 200pt;">Aditya Birla SL Frontline Equity Fund</td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">6.20%</td> </tr> <tr> <td class="xl69" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 200pt;">AXIS Long Term Equity Fund</td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">6.70%</td> </tr> <tr> <td class="xl69" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 200pt;">HDFC Top 100 Fund</td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">18.30%</td> </tr> <tr> <td class="xl69" style="height: 30pt; border-top-width: initial; border-top-style: none; width: 200pt;">ICICI Pru Value Discovery Fund</td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">21.90%</td> </tr> <tr> <td class="xl69" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 200pt;">Mirae Asset Large Cap Fund</td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">12.10%</td> </tr> <tr> <td class="xl69" style="height: 30pt; border-top-width: initial; border-top-style: none; width: 200pt;">Motilal Oswal Multicap 35 Fund</td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">2.60%</td> </tr> <tr> <td class="xl69" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 200pt;">Reliance Large Cap Fund</td> <td class="xl71" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">14%</td> </tr> <tr> <td class="xl69" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 200pt;">Franklin India Equity Fund</td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">2.40%</td> </tr> <tr> <td class="xl69" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 200pt;">Aditya Birla SL Equity Fund</td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">4.40%</td> </tr> <tr> <td class="xl69" style="height: 30pt; border-top-width: initial; border-top-style: none; width: 200pt;">Reliance Tax Saver ELSS Fund</td> <td class="xl70" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 200pt;">2.90%</td> </tr> <tr> <td class="xl69" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 200pt;">Reliance Multicap Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">15.20%</td> </tr> <tr> <td class="xl69" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 200pt;">UTI Equity Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">2.50%</td> </tr> <tr> <td class="xl69" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 200pt;">Aditya Birla SL Tax Relief'96</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-0.50%</td> </tr> <tr> <td class="xl69" style="height: 30pt; border-top-width: initial; border-top-style: none; width: 200pt;">Franklin India Focussed Equity Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">14.40%</td> </tr> <tr> <td class="xl72" style="height: 15.75pt; border-top-width: initial; border-top-style: none; width: 200pt;">HDFC Small Cap Fund</td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-2.10%</td> </tr></tbody></table> Mutual funds -- a pool of money collected from many investors to invest in stocks, bonds, money market instruments, and other assets-- in India ended June 2019 with record money under management. The inflow into these funds were ₹107 billion, the highest in the last seven months. People invest in mutual funds in India for financial security, to grow their wealth as well as to save on taxes. The Indian government allows a rebate on income tax on money invested in mutual funds up to a maximum of ₹150,000 a year to every individual under section 80C of the Income Tax Act. The amount of money coming into mutual funds had slowed down in the last few months as investors became wary of betting more money in the market for a variety of reasons-- from slowing economy to the risk of elections to growing global tensions, both geopolitical and economic. People who have been investing in systematic investment plans -- small monthly investments-- continued their practice. However, new signings have been lower four out of the last six months showing that there is still palpable fear among investors. SEE ALSO: <a href="https://www.businessinsider.in/videos/business/unhappy-with-salary-hikes-market-expert-nilesh-shah-explains-a-good-way-to-evaluate-your-appraisal/videoshow/70037563.cms" data-type="tilCustomLink" target="_blank">Unhappy With Salary Hikes? Market Expert Nilesh Shah Explains A Good Way To Evaluate Your Appraisal</a> Correction: The data and inference had multiple errors in the earlier version of the story which have now been fixed.

The top 20 mutual funds in India and their performance over the last one year

<ul class="summary-list"><li>A mutual fund is a portfolio of investments that pools money from investors to purchase stocks, bonds, or other securities. </li><li>The majority of <keyword id="6357979" type="UNKNOWN" weightage="60" keywordseo="mutual-funds">mutual funds</keyword> are professionally managed with the aim to outperform the market.</li><li>Though they come with fees, mutual funds can add value to your portfolio by offering professional management and diversification.</li></ul>A mutual fund is a type of investment vehicle that pools money from many investors to purchase <a href="https://www.businessinsider.com/what-is-stock" target="_blank" rel="noopener">stocks</a>, <a href="https://www.businessinsider.com/what-is-a-bond" target="_blank" rel="noopener">bonds</a>, or other securities. Investors who mutually contribute to the fund company become part owners of the fund's portfolio and the income it generates or loses. "Mutual funds are an easy and well-established way to give everyday investors <a href="https://www.businessinsider.com/what-is-diversification" target="_blank" rel="noopener">diversification</a>," says <a href="https://www.schwab.com/schwab-experts/michael-iachini" target="_blank" rel="noopener">Michael Iachini</a>, vice president and head of manager research for Charles Schwab Investment Advisory. "They are well established since the 1920s, and they have a track record of working for investors."While mutual funds have been around for decades, investors are increasingly becoming hip to their benefits. In 2020, 45.7% of US households owned mutual funds, compared to just 5.7% in 1980 according to an <a href="https://www.ici.org/viewpoints/21_view_mfownership" target="_blank" rel="noopener">Investment Company Institute (ICI) survey</a>. Here's what to know about mutual funds, including how they work, what to watch out for, and how to get started investing in them. <h2>How do mutual funds work?</h2>Generally, mutual funds are actively managed by a fund manager who controls when to buy and sell securities in order to maximize returns and minimize losses. When you buy a mutual fund, you're buying partial ownership of the fund and its assets, meaning its entire portfolio of investments.This differs from buying an individual stock, where you buy partial ownership directly in a company and manage any subsequent moves yourself (unless you have a financial manager). The price of a mutual fund is determined by its net asset value (NAV), which takes all of the portfolio's securities into account. It is found by dividing the total value of the fund's assets (cash and securities) by the number of the fund's outstanding shares. Since a mutual fund's portfolio consists of many securities that change price throughout the day, the NAV is calculated at the end of the market day. Because of this, mutual funds trade only once per day, <a href="https://www.businessinsider.com/stock-market-hours" target="_blank" rel="noopener">after the markets close</a>.Example: Let's say you want to put $2,000 toward a mutual fund. If the fund's NAV is $20, you're able to purchase 100 shares - not counting fees. Along with other investors' contributions, that $2,000 would then be used by the fund manager to make trades with the goal of outperforming the market.<h3>Mutual fund fees</h3>You should be aware that mutual funds come with structured fees for active management, which eat into your total profits. A mutual fund will label fees into two main categories:<ul><li>Annual fund operating expenses: A fund's total annual operating expenses include management and transaction fees, which are expressed collectively as <a href="https://www.businessinsider.com/what-is-expense-ratio" target="_blank" rel="noopener">the fund's expense ratio</a>. While relatively small, expense ratios can significantly affect a fund's return, especially over time.</li></ul><ul><li>Shareholder fees: A fund can also come with shareholder fees, which cover commissions regarding buying and selling the fund. Most mutual funds will have a sales charge called a "load," which can be a flat fee or a commission, and occur when you purchase or sell your shares back to the fund. </li></ul>If you're in the market for a mutual fund, its fees are an important factor to consider. You can find all associated fees outlined in detail in the <a href="https://www.businessinsider.com/prospectus" target="_blank" rel="noopener">fund's prospectus</a>.<h3>How to make money investing in mutual funds</h3>You can make money on mutual funds in a few different ways:<ul><li><a href="https://www.businessinsider.com/what-is-a-dividend" target="_blank" rel="noopener">Dividend payments </a>: Similar to stocks, a mutual fund can pay out dividends to its investors periodically. They can choose to receive these payouts as cash or to reinvest them in your account.</li><li><a href="https://www.businessinsider.com/what-are-capital-gains" target="_blank" rel="noopener">Capital gains</a> : When an investor sells a fund at a profit, that's known as a capital gain. This gain gets passed off to a fund's shareholders annually.</li><li>NAV: If your mutual fund's value increases, the price to purchase its shares will also increase. This benefits you if you choose to sell your shares since you would sell at a gain. </li></ul>Quick tip: When looking at NAV, you want to follow how a fund's value changes over time, rather than comparing one fund's value to another in a single day.<h2>What are the pros and cons of mutual funds?</h2>Before you add mutual funds to your portfolio, there are advantages and disadvantages that can help you decide whether they are the right fit for your investment style and goals. <h3>Pros </h3><ul><li>Offers simplicity and peace of mind with professional fund managers.</li><li>Typically requires a small minimum investment to buy in.</li><li>Adds diversification to your portfolio with various asset classes and industries held in one fund.</li><li>Ability to invest with exact dollar amounts versus buying shares of stocks at fluctuating prices.</li></ul><h3>Cons </h3><ul><li>Professional management fees can be costly. </li><li>Mutual funds are not insured by the Federal Deposit Insurance Corporation (FDIC), so there is the risk of losing money.</li><li>There's a chance of dilution decreasing the worth of your shares when a successful mutual fund grows too big.</li><li>You have no control over a fund manager's decisions, which can trigger tax implications like capital gains that add to your taxable income.</li><li>Since mutual funds trade after <keyword id="31671" type="CITY" weightage="100" keywordseo="markets">markets</keyword> close, they don't allow for trading during the day and taking immediate advantage of market movements.</li></ul><h2>Types of mutual funds</h2>Mutual funds aren't homogenous. They are classified into many different types, including the securities they invest in and the investment goals they seek to achieve. Here are seven of the major types:<h3>1. Equity funds</h3>Equity funds invest mostly in stocks and are often categorized by company size and <a href="https://www.businessinsider.com/what-is-market-cap" target="_blank" rel="noopener">market capitalization</a>. Equity funds can be labeled as growth, value, or blended funds. Growth funds hold shares of companies with potential to outperform the overall market, while value funds are filled with stocks of seemingly undervalued companies. Blended funds mix both growth and value stocks.<h3>2. Bond funds</h3>Bond funds pool investors' money to primarily purchase <a href="https://www.businessinsider.com/what-is-a-bond" target="_blank" rel="noopener">bonds</a>, from short- to long-term maturities. Some funds include a range of securities including government bonds, corporate bonds, and mortgage-backed securities, while others may focus on a specific part of the bond market.Bond funds provide quick diversification without buying various bonds individually. Many funds also distribute dividends each month, which you can reinvest. <h3>3. Money market funds</h3>Money market funds are fixed-income mutual funds that invest in short-term debt securities with low credit risk. These funds aim to provide <a href="https://www.businessinsider.com/what-is-liquidity" target="_blank" rel="noopener">liquidity</a>, maintain a stable share price, and distribute regular income earned on its securities to its investors. Money market funds are categorized as government, prime, or tax-exempt, depending on the securities held within the fund. Securities often invested in money market funds include short-term US Treasury securities, federal agency notes, certificates of deposit, corporate commercial paper, and municipal agency obligations. <h3>4. Balanced funds</h3>Balanced mutual funds invest in both bonds and stocks, so you get the best of both worlds with steady income and investment growth. Also known as asset allocation funds, these funds typically stick to their original asset mix. If any changes are made, the funds are automatically rebalanced to bring them back to the original allocation.<h3>5. Index funds</h3><a href="https://www.businessinsider.com/what-is-an-index-fund" target="_blank" rel="noopener">Index funds</a> are a type of mutual fund designed to mirror the performance of a particular market index, like the <a href="https://www.businessinsider.com/what-is-the-sp-500" target="_blank" rel="noopener">S&amp;P 500</a> or the <a href="https://www.businessinsider.com/what-is-dow-jones" target="_blank" rel="noopener">Dow Jones Industrial Average</a>. Because index funds are built to match the performance of the target index, they are passively managed investments. This means they require less research and trading from the fund manager, so there are fewer fees and expenses. It's important to note that while an index fund can be structured as a mutual fund, it can also be an <a href="https://www.businessinsider.com/personal-finance/what-is-an-etf-exchange-traded-fund" target="_blank" rel="noopener">exchange-traded fund </a>(ETF). Index funds are especially favored by investors because they are a low-risk, low-maintenance, low-cost way to see steady returns over time. <h3>6. Specialty funds</h3>Specialty funds, or sector funds, concentrate on securities within a specific industry or market sector, such as real estate, technology, or healthcare. Examples of specialty funds include real estate mutual funds, which invests in <a href="https://www.businessinsider.com/what-is-a-reit" target="_blank" rel="noopener">REITs</a> and other real estate-related investments. Because specialty funds are focused on specific sectors like health care and technology, they aren't diverse so you'll want to mix these in with other types of funds and assets. <h3>7. Target-date funds</h3>Target-date funds operate with a specific goal date in mind. These funds automatically rebalance the asset mix within their portfolio over time and become more risk-averse as the target date nears. Target-date funds are popular for retirement savings since you can set your retirement date as the target, and let the fund adjust for you.<h2>How to start investing in mutual funds</h2>You likely have already invested in mutual funds if you have a <a href="https://www.businessinsider.com/what-is-a-401k" target="_blank" rel="noopener">401(k) retirement account</a>. But if you want to <a href="https://www.businessinsider.com/personal-finance/how-to-invest-in-mutual-funds-step-by-step-guide" target="_blank" rel="noopener">start investing in mutual funds</a> outside of employer-sponsored accounts, you can buy and sell them through an online broker with a brokerage account. You can also buy mutual funds directly from the company that created the fund, like Vanguard or Fidelity, although that limits your options to whatever they offer. If you need more guidance with your investments, you could consider working with a financial advisor or broker.Each fund and each brokerage account may require a specific minimum investment amount to get started. "You typically don't need a lot of money in a mutual fund," says Iachini. "At least have $100 saved up. Once you've chosen a fund, look at its asset class, expense ratio, investment objective, whether that's income, growth, or intentionally trying to be conservative, and who is managing the fund." It helps to ask yourself a few questions to help narrow down your options. How involved in rebalancing your asset allocation do you want to be? What are you saving for? What do you value? For example, if you're saving for retirement, you'll want to look to target-date funds. Or perhaps you want to look for <a href="https://www.businessinsider.com/esg-investing" target="_blank" rel="noopener">ESG funds that invest in socially conscious companies</a>.<h2>The financial takeaway</h2>Mutual funds are popular among investment experts for the easy diversification they bring to investment portfolios. If you're looking to invest in mutual funds, just make sure to keep an eye on costs, since actively managed mutual funds can eat into your profits with expense ratios and commissions. Beginner investors may be better off choosing index funds over actively managed funds to snag earnings without a big price tag. <a data-type="5dee79d5fd9db265fd2bf528">How to invest in mutual funds and grow your money for retirement, a bucket-list trip, or any other long-term goal</a><a data-type="5f5a55530afbe75a2409da00">ETFs and mutual funds can instantly diversify your portfolio, but they differ in how they're traded, managed and taxed</a><a data-type="5ebd93814dca680fe75f6785">An ETF is a type of investment that's easy to purchase and requires little management</a><a data-type="5d03c1066fc92021fc090e21">How to invest in index funds to build long-term wealth</a>

What are mutual funds? What to know to start investing

<ul class="summary-list"><li>Index funds and <keyword id="6357979" type="UNKNOWN" weightage="60" keywordseo="mutual-funds">mutual funds</keyword> let you invest in a variety of stocks, bonds and assets without having to cherry-pick your investments.</li><li>While mutual funds are actively managed by an investment professional, index funds are more passive, making them good for hands-off investors wanting steady returns.</li><li>Mutual funds come with much higher fees than index funds, which can cut into your potential gains.</li></ul>For many beginning investors, the idea of hand-picking stocks can probably seem quite daunting. Fortunately, with tools like <a href="https://www.businessinsider.com/what-is-an-index-fund" target="_blank" rel="noopener">index funds</a> and <a href="https://www.businessinsider.com/mutual-funds" target="_blank" rel="noopener">mutual funds</a>, that type of legwork isn't actually necessary to start your investing journey. Here's what you need to know about these investment vehicles - and when you might want to invest in them.<h2>Index fund vs. mutual fund: at a glance</h2>Both index funds and mutual funds allow you to invest in a variety of assets without having to cherry-pick those investments one by one. The major differences are how those funds are managed and their earning potential.Here are the basics of both types of funds:<ul><li>An index fund is a pool of investments that aims to mimic the performance of a certain market index - often the <a href="https://www.businessinsider.com/what-is-the-sp-500" target="_blank" rel="noopener">S&amp;P 500</a>, the <a href="https://www.businessinsider.com/what-is-dow-jones" target="_blank" rel="noopener">Dow Jones Industrial Average</a> or the <a href="https://www.businessinsider.com/what-is-nasdaq" target="_blank" rel="noopener">Nasdaq</a> Composite (though there are many more.) Investors buy shares in the fund and see gains when stocks within the fund grow in value.</li><li>A mutual fund is a company or fund that invests in a variety of assets, including <a href="https://www.businessinsider.com/what-is-stock" target="_blank" rel="noopener">stocks</a> and <a href="https://www.businessinsider.com/what-is-a-bond" target="_blank" rel="noopener">bonds</a>. Investors can then purchase shares of the fund, thereby purchasing a stake in all companies within that portfolio. Unlike index funds, mutual funds are actively managed, meaning a professional monitors the portfolio's performance and regularly makes buys and trades within it.</li></ul>According to Matthew Willett, an investment advisor at WealthPlan Advisors in Scottsdale, Ariz., both funds offer baskets of securities, which investors can then buy shares of. "Instead of buying shares of many individual companies, investors can purchase shares of a fund made up of hundreds or thousands of companies," Willett says. "As the companies within the fund either increase in share price or decrease, the value of investors' shares in the fund will change in conjunction."<h2>Index fund</h2>An index is a type of mutual fund or <a href="https://www.businessinsider.com/what-is-an-etf" target="_blank" rel="noopener">ETF</a> that aims to match the returns of a certain index. The S&amp;P 500 is one of the most commonly used indices, but there are many others, too, including the Wilshire 5000 Total Market Index, the Russell 2000 Index, and the Dow Jones Industrial Average.With an index fund, money is invested into securities within the aligned index - sometimes all of them, sometimes just a sampling. The ultimate goal is to mirror the performance of the overall index and deliver similar returns to the fund's investors.Investors usually gain a small percentage annually. According to <a href="https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/s-p-500-returns-to-halve-in-coming-decade-8211-goldman-sachs-59439981" target="_blank" rel="noopener">2020 data</a>, the S&amp;P 500 returned 13.6% annually over the last 10 years. Historically, annual returns have averaged 9.2%.Because index funds don't require regular trading or selling, they're considered passive investments, and they aren't actively managed by a professional. This means fees are smaller on these funds than on other investment vehicles - particularly when compared to actively managed mutual funds. "An index fund would be best for someone who did not have a lot of money and was just starting to invest," says Josh Simpson, vice president of operations and investment advisor with Lake Advisory Group. "This would allow them to achieve diversification with their investment without having to spend hours learning how to invest."<table style="border-collapse: collapse; width: 100%;" border="1"><tbody><tr><td style="width: 50%;">Pros</td><td style="width: 50%;">Cons</td></tr><tr><td style="width: 50%;"><ul><li>Lower fees than mutual funds</li><li>Allows you to diversify across many companies and sectors </li><li>Slow but dependable returns over time</li><li>Requires minimal research or investing know-how</li></ul></td><td style="width: 50%;"><ul><li>Not actively managed by a professional</li><li>No choice in who you invest in, which could be challenging if you take issue with a company's business practices</li><li>Short-term gains are limited because you're only invested in very small shares of each stock</li></ul></td></tr></tbody></table><h3>Example of how an index fund works</h3>The <a href="https://investor.vanguard.com/mutual-funds/profile/overview/vfiax" target="_blank" rel="noopener">Vanguard 500 Index Fund</a> is a good example - and is actually the first index fund to ever exist. The fund tracks the S&amp;P 500 Index and contains shares of all 500 companies within it. It has delivered an average annual return of 7.84% since 2000, just under the Index's average in that timeframe.<h2>Mutual funds</h2>Mutual funds, like index funds, invest in a variety of stocks, bonds, and other assets, only they're not trying to track the market - they're trying to beat it. Mutual funds come in several types, including <a href="https://www.businessinsider.com/what-is-the-money-market" target="_blank" rel="noopener">money market</a> funds, bond funds, target date funds, and stock funds (index funds fall into this category.) The majority of these funds (aside from index funds) are actively managed, which means an investment professional will sell and purchase shares within the portfolio regularly in an effort to maximize returns. While this does open the door for higher potential gains than index funds, it also means returns are unpredictable. "The reason someone would choose an actively managed mutual fund is that if one can identify a fund manager that can consistently beat the market, one can accrue tremendous wealth," says Robert Johnson, chairman and CEO of Economic Index Associates and a professor of <keyword id="25455" type="ORGANIZATION" weightage="100" keywordseo="finance">finance</keyword> at Creighton University. "For instance, investors who invested in the Fidelity Magellan fund during the time period Peter Lynch managed it earned an average of 29.2% during his time running it - more than twice what the S&amp;P 500 earned during that time."Those kinds of gains aren't guaranteed, though. And in many cases, actively managed funds actually underperform the market. According to data from the <a href="https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2020.pdf" target="_blank" rel="noopener">S&amp;P Dow Jones Indices</a>, 82% of large-cap funds underperform the S&amp;P 500 over a 10-year period. Quick tip: Actively managed funds come with higher fees than passive ones (like index funds). According to the <a href="https://www.ici.org/system/files/private/2021-04/per27-03.pdf" target="_blank" rel="noopener">Investment Company Institute</a> (ICI), the average fee for equity mutual funds is 1.16%. On index funds, it's just 0.58%.<table style="border-collapse: collapse; width: 100%;" border="1"><tbody><tr><td style="width: 50%;">Pros</td><td style="width: 50%;">Cons</td></tr><tr><td style="width: 50%;"><ul><li>Allows you to diversify across many companies and sectors </li><li>Could allow for higher gains, but only if managed well</li><li>Several types of mutual funds to choose from</li></ul></td><td style="width: 50%;"><ul><li>Higher fees than index funds</li><li>Requires more research to find the right fund (and fund manager)</li><li>Riskier than index funds, as managers often try to beat the market</li></ul></td></tr></tbody></table><h3>Example of mutual funds</h3>Say you plan on retiring in 2045. If you want to maximize your available cash by that time, you might consider a 2045 target date fund - an actively managed mutual fund with an established end date. To participate, you'd purchase shares of the fund - along with other investors looking to retire around the same time - and your fund manager would buy and sell assets to help you reach your goal by the target date. Quick tip: If you opt for a mutual fund, make sure you choose your fund carefully. Your fund manager will play a critical role in reaching your financial goals.<h2>The financial takeaway</h2>Both index funds and mutual funds can help you achieve your financial goals, but through very different approaches. With one, you'll enjoy passive, hands-off investing that offers steady returns. With the other, you'll get an actively managed fund that could, in some cases, beat the market.If you're not sure which is best for your goals, speak to a financial planner. In many cases, both investment vehicles may be the right choice for your long-term wealth.<a data-type="602bff0506adf848107b0559">What are the safest investments? 7 low-risk places to put your money - and what makes them so</a><a data-type="5c9108c901df722d966ff305">A comprehensive guide to investing in stocks for beginners</a><a data-type="60d60d694dde6162896da014">How to buy a stock: A step-by-step guide to help you get started investing</a><a data-type="5f8f5577851d5a52d53dd6a5">How to buy treasury bonds, one of the safest ways to invest for income</a>

Index funds vs. mutual funds: What's the difference?

Over the past few years, mutual fund schemes in India have significantly grown. As a result, we see the best performance funds keep changing. In India, systems like CRISIL, Morning Star, and ICRA evaluate the performance of <keyword id="6357979" type="UNKNOWN" weightage="20" keywordseo="mutual-funds">mutual funds</keyword> on the basis of the returns they assure, standard deviation, qualitative and quantitative aspects and other factors. When these findings are summed up, we get the list of top performing <keyword id="864677" type="PERSON" weightage="20" keywordseo="Mutual-Funds-in-India">mutual funds in India</keyword> for a given financial year. This list can guide the investors in choosing the right kind of avenues to invest in the domain of mutual funds. Here we discuss the <keyword id="35457" type="PERSON" weightage="20" keywordseo="Best-Mutual-Funds">best mutual funds</keyword> for FY 2019-20. <table style="width: 279pt;"> </colgroup> <tbody><tr> <td class="xl65" style="height:15.0pt;width:162pt">Mutual Fund Name</td> <td class="xl65" style="border-left-width: initial; border-left-style: none; width: 117pt;">12-month change (%)</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Mirae Asset Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">58.7</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Invesco Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">49.9</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">AXIS Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">23.4</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Canara Robeco Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">20.5</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">SBI Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">20.4</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Kotak Mahindra Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">16.1</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Tata Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">11.8</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">IDFC Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">11.6</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">PRINCIPAL Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">3.9</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">UTI Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">2.9</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">ICICI Prudential Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">2.7</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">HDFC Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">1</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Reliance Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">0.2</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">L&amp;T Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-7.1</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Motilal Oswal Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-7.7</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">BNP Paribas Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-8.1</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Sundaram Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-8.4</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Aditya Birla Sun Life Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-9.9</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Franklin Templeton Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-12.1</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">DSP Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-13.3</td> </tr></tbody></table>Source: August'19 (Motilal Oswal - Indian Mutual Fund Tracker) Nifty changed by -5.6% during the same period. The background Following the market correction in 2018, the valuations in several categories have reached highly attractive levels. This has opened up new opportunities for the investors and the fund managers. India’s top performing mutual funds are all set to assure strong returns to the investors in 2019-20. Axis Blue Chip Fund Incepted on January 5, 2010, the AUM of this large cap fund is Rs. 4,802 crore. The outperformance of this fund over the recent past is impressing the industry experts during a time when a large number of actively managed funds failed during last year. As of May 2019, the 5 year CAGR of Axis Bluechip Fund is 15.16%. This can offer a solid platform for a very powerful mutual fund portfolio in 2019. Kotak Standard Multicap Fund Considered under the category of Equity Multicap fund, the AUM of Kotak Standard Multicap Fund incepted on September 11, 2009, is Rs. 23,881 crore. It has delivered a return of 19.48% over the past five years. This fund also presents immense growth prospects in the mid cap space. Fairly diversified across 56 sticks, the investors feel they are taken care very well when they invest in it. HDFC Small Cap Fund Found under the category of small cap funds and incepted on April 3, 2008, the AUM of HDFC small cap fund is Rs. 7,660 crore. Despite the severe test of the times in 2018, the fund has managed to provide the investors a 5 year CAGR at 20.83%. About 57% of this funds has been invested in small cap companies while 36% is invested in mid-cap space leaving the remaining 6% to large caps. Franklin India Prima Fund Incepted on December 1, 1993, this fund has completed 25 years in the stock market. Categorized as mid cap fund, the AUM is Rs. 7,116 crore. It could deliver a highly amazing 19.52 CAGR. This will mean that if a sum of Rs 1 lakh was invested in during its inception, it will value at Rs 90.70 lacs now. Axis Long Term Equity Fund Incepted on December 29, 2009 and categorized as ELSS tax saving fund, the AUM of this fund is Rs. 18,852 crore. This fund is considered as a legend in the arena of tax saving schemes. For a long time, it has continuously outperformed till it reached a point when a majority of investors always had a portion of their tax saving investment in this fund. See Also:<a data-type="tilCustomLink">Top Mutual Funds to invest this Diwali for long-term prosperity of your Family</a>

Top performing mutual funds in India 2019

“Mutual funds investments are subject to market risks, please read the offer document carefully before investing’ goes the oft-repeated statement.” 
	 
This warning that is written on all mutual fund investment documents and websites, just like they write warnings on cigarette packs, yet mutual fund investors ignore this caution primarily because people like you or me are not generally aware of the risks involved in mutual funds. This article would cover various market risks involved in mutual fund investments and also share tips on how you can reduce them. 
 

	Types of risks
The market risks are of two types. One type is of market risks are the ones that you, as an investor, can do nothing about. These are called systematic risks; these could be political factors, exchange rate fluctuations or even bad weather. Contrary to what you may have heard, these are difficult, if not impossible to predict or avoid. The second type is of risks are those that you can manage by diversification strategies. Generally, in a mutual fund, these risks are taken care of by your fund manager but you should be aware of them nonetheless. We can categorize them further into three broad types: business risk, concentration risk and liquidity risk. 
 
· Business risk: A sudden strike in the auto sector is an example of business risk. Poor financial performance of a company is another example. A fund manager mitigates this by diversifying across companies and sectors. 
 
· Concentration risk comes in when a mutual fund invests too large a proportion of its money in a single stock or sector. Sector funds, by definition, suffer from concentration risk because they invest in a single sector. 
 
· Liquidity risk arises if a fund cannot quickly convert its investments into cash, either in response to a redemption demand by investors or as part of portfolio rebalancing. Mutual funds investing in small cap stocks face this risk. 
 
 
 
What can you do about this, now that you know? 
Be careful while picking mutual funds. Ensure that you invest in large well-diversified equity funds. If you invest in specific sector or small/mid cap funds, do it with full knowledge of attendant risks. 
In our experience, mutual fund managers do a good job of managing risk. The biggest risk to an individual investor investing in mutual funds comes from faulty investment practices. And there is a lot you can do about it. 
 
Reduce risk by reducing mistakes 
Investing by definition involves exposing yourself to ‘risk’. The best you can do is: minimize risk. Having decided to invest via mutual funds, and not directly into stocks, is step 1 of minimizing risk. You are saying, “Let me entrust the task of investing to people more capable than me, and who do it fulltime”. 
 
But most investors still make lots of simple errors while investing in mutual funds. Let’s look at common errors, so can you avoid them. 
 
1. Investing with expectation of very high returns 
In an earlier section we talked about what the long-term expected returns from various asset classes are. However, we continue to see investors choose investments with expectation of unreasonable (40-50%) returns. This is just not going to happen and in an attempt to generate that return, you are likely to be misled into investing in funds that have shown a temporary blip in performance. 
Look at returns of funds over a minimum 5 year period. A 2-3% outperformance for equities and a 0.5-1% outperformance in debt funds is the best you can expect and you should be aware of that. 
 
2. Investing without understanding of underlying investments 
You already know that all mutual funds are not the same. Depending on which asset class and category of assets they invest in, you will get different returns with different behaviours. Debt funds offer lower but steadier return. Equity funds offer higher but more volatile return. 
 
Taxes saving funds (ELSS) are essentially equity funds and have the same return and risk profile. 
 
With this course, you should have enough knowledge to understand how the returns from a specific type of mutual fund will vary. 
 
3. Investing in NFOs “at par” or funds with “low” NAV 
Some investors believe lower the NAV (Net Asset Value) of a fund, the better value it provides. In other words, a fund with an NAV of Rs 20 is “cheaper” than another with an NAV of Rs 30. This belief is, perhaps, a mistaken application of the value-investing principles of equity investing. 
 
So, often such investors invest into a New Fund Offering (NFO) at par value or Rs 10, thinking they are buying value. 
 
But as you already know, from this course, that it makes no difference whether the NAV of a fund is high or low. In fact, older funds, with a longer track record, will always have high NAV and you are better off choosing those rather than a new fund with lower NAV but no track record. 
 
4. Investing for “dividends” 
We often see advertisements by mutual funds declaring dividends. Some investors are misled by these and think higher dividends reflect good performance. In the case of mutual funds, dividend declaration is nothing more than a book entry. Dividends are not interest but repayment of capital. Therefore the fund’s NAV falls to the extent the dividends are paid out to its unit holders. In fact, a growth option where you withdraw the money when YOU need it is better for you from a tax perspective. 
 
Conclusion 
Understanding market risk is important, but if you have chosen the asset class that best meets your objectives, you can trust the fund manager to manage the market risk for you. 
As an investor, you should focus on things you can control which are: Choosing the right mutual funds; following the correct process for investing; and reviewing your investments every year. 
 
(About the author: This article has been contributed by Sanjiv Singhal, CEO, <a href="http://scripbox.com/" target="_blank">scripbox.com</a>.) 
 
(Image credits: www.economictimes.com)

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