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Quality and High Liquidity in Mutual Funds





For some unknown reasons, investing in mutual funds in India is almost always taken to be equity investing. This is despite the fact that out of a total of approximately Rs 11 lakh crore invested in mutual funds today, 70% is invested in debt funds, which do not invest in equity markets at all. Consequently, investor perception of mutual funds is of a one-horse race, and that horse is stock markets.

The reality is quite different though. Mutual fund as a class of investing is not a single product, unlike bank FDs, stocks or gold. It is more like a basket that has three products -stocks, debt products and gold, and in varied proportions. And an investor can mix and match these products according to his her liking and requirement. Investors can choose one product with a mix of these asset classes or choose individual products of different asset classes. And, to top it all, if chosen correctly, there can be seamless shifting between these classes.

If an investor likes large company stocks now, he / she can invest in a good large-cap equity fund. Then sometime down the line, if the investor feels that some part of it should go to a safer debt product and gold, such a shift -full or partial -to a debt fund and a gold fund is possible, with the balance continuing to be in the equity fund. In case the shift is within the ambit of the same mutual fund house, it can be done without exiting the fund by simply submitting a switch request.

So, mutual fund investing is more like an a la carte menu that gives you the flexibility of ordering bulk dishes in small regular bites (systematic investment plans SIPs) or a combination of both, as you like it.

Taking out the money is equally easy and investor friendly -it can be taken out in small bites (systematic withdrawal plan SWP), in full or in parts. Most of the mutual funds redeem the money in three-four working days. There are, of course, liquid funds where the money is at your call within one working day.

While the mutual fund supermarket gives you this flexibility and ease, it does not dis appoint you on quality either. With expert fund managers managing your money, you would expect them to do better than if you were to manage it yourself. The table Options Galore For Investors given here shows the returns generated by various categories of mutual funds over different time periods. Bank FD returns have been taken to be of FDs done one, three and five years back. Even the liquid funds, which are equated to savings bank accounts, have traditionally given about double the returns compared to bank accounts.

However, tax incidence on mutual funds has to be carefully considered. Dividends received from debt mutual funds would be taxed more heavily than your income tax slab if you are in a tax bracket lower than 30%. Similarly, if you are in 10% tax bracket, short-term capital gains (less than one year of investing) in equity mutual funds could mean a higher tax outgo for you. On the contrary, longer term investing in equity funds (more than one year) and debt funds (more than three years) could be very tax-efficient, in addition to giving you good returns.

Due to such varied and beneficial characteristics, the mutual fund supermarket could be a one-stop solution for almost all financial shopping (except real estate and alternative investments, for now) while meeting all the financial requirements of a typical investor -wealth-creation, building a retirement corpus, planning for children's needs like education and wedding, providing for financial goals, etc. They are an ideal product for long-term investing but do not disappoint even for short-term investing, even as short as a few weeks.

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Best Performing Mutual Funds

1. Largecap Funds Invest Online
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4. IDFC Premier Equity Fund
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D. Small and MicroCap Funds Invest Online

1. DSP BlackRock MicroCap Fund
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E. Sector Funds Invest Online

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3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

3. DSP BlackRock Tax Saver Fund
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G. Gold Mutual Funds Invest Online

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3. HDFC Gold Fund
4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF