I dedicate this post to all those of you who are new to Mutual funds and Equities, but are eager to learn and further explore this uncharted land ! at-least for most of them.
Every day, I think you must be bombarded with new jargons such as NAV, Bullish, Bearish, Hold, Buy, etc. It would practically impossible decipher all these terms in one go. If I do so, you will not be able to understand it completely without the context. Hence let us take baby steps towards learning all these terms. Over a period of a reading a few of subsequent articles I am sure that you will get a real hang of things.
1. So, to start with...What are Mutual Funds?
The simplest definition goes something like this - "Mutual fund is a vehicle to mobilize moneys from investors, to invest in different markets and securities, in line with the investment objectives agreed upon, between the mutual fund and the investors."
Their primary objective is to assist investors in earning an income or building their wealth by participating in the opportunities in various securities and markets.
2. How are your investments handled?
* The investment that an investor makes in a scheme is translated into a certain number of ‘Units’ in the scheme.
* Under the law, every unit has a face value of Rs. 10.
* The number of units multiplied by its face value (Rs. 10) is the capital of the scheme – its Unit Capital.
* The scheme earns interest income or dividend income on the investments it holds.
* Further,when it purchases and sells investments, it earns capital gains or incurs capital losses.
3. What is the NAV then?
“This is the value per unit of the scheme on
a particular day.”
4. What are the tax implications (benefits) on Mutual Funds?
* Only Equity Linked Saving Schemes (ELSS) are entitled for tax benefits (80C).
* ELSS schemes give investors the benefit of deduction of the amount invested, from
their income that is liable to tax.
* Dividends received from mutual fund schemes are also tax-free in the hands of the investors.
* However, the investment is subject to lock-in for a period of 3 years.
5. Any examples for some popular Mutual Funds in India?
* Only Equity Linked Saving Schemes (ELSS) are entitled for tax benefits (80C).
* ELSS schemes give investors the benefit of deduction of the amount invested, from
their income that is liable to tax.
* Dividends received from mutual fund schemes are also tax-free in the hands of the investors.
* However, the investment is subject to lock-in for a period of 3 years.
The same information can be viewed as a PPT below:
Till we catch up the next time, take care and bye. Do write to me in case you have any queries on this.
Bye,
Ravi
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