Wealth Management India

Mutual fund Investments

A mutual fund is a cost efficient & professionally managed investment scheme run by an asset management company (AMC). It involves pooling the money of investors into a sizeable corpus. This amount is then invested into various securities such as stocks, bonds, treasury bills etc. depending upon the objective of the scheme. Investment objectives could be wealth creation through capital appreciation, providing a regular income, parking surplus cash for a short duration or others. The objective of the scheme governs the assets classes a fund manager invests in.

Mutual funds are well-regulated and closely monitored products by the securities exchange board of India. Investors aided by SEBI registered advisors could confidently invest a portion of their wealth in mutual funds. All long term capital gains (> 1 year) from equity mutual funds are taxed at 10% and debt mutual funds (>3years) are taxed at 20% post indexation. Investments including the principal in Equity Linked Savings Scheme category is tax-free under section 80C.

At prosperity wealth management we help investors navigate through the 2000+ mutual fund schemes available and construct meaningful portfolios to realise their investment targets. A few parameters we consider before investing in mutual funds are listed in the table below. To invest in mutual funds, get in touch with us here.

Evaluation Criteria for mutual funds

Parameter Description
Market Capitalisation Percentage of assets invested in Small, Mid and Large Cap stocks.
Beta Ratio Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the entire market or a benchmark.
Price Earnings Ratio of the Scheme Provides an idea of whether the scheme is overvalued or under-valued as against its benchmark.
Average assets under management Total funds managed by a fund manager under a particular scheme.
Historic Performance Past performance of a chosen mutual fund scheme.
Concentration Ratio Percentage of assets held in one particular stock or sector in a scheme.
Bench Marks Relevance of the chosen benchmark to the scheme
Portfolio Churn Rate The frequency with which securities are bought and sold within a scheme
Exit Load Penalty paid by an investor for premature withdrawal.
Fund Managers Experience Other funds managed and track record of the fund manager of a scheme.
Average Maturity (Debt / Hybrid Funds) Duration to Maturity of the securities held under debt schemes
Modified Duration (Debt / Hybrid Funds) Sensitivity of returns of a debt scheme to the interest rate fluctuations in the market
Credit Quality (Debt / Hybrid Funds ) Percentage of government securities and AAA rated bond papers held under a debt scheme

Equity FundsDebt FundsHybrid Funds

Equity funds Portfolio construction
Multi cap fund 65% exposure across market capitalization
Large cap fund 80% exposure to large cap stocks
Large cap and Mid cap fund 35% exposure to large cap and 35% to mid cap
Mid cap fund 65% exposure to mid cap stocks
Dividend yield fund 65% exposure to dividend yielding stocks
Focused fund 65% on focused strategies
Sectoral / Thematic fund 80% exposure in a particular sector or thematic
ELSS 80% exposure to equity instruments