Personal Finance

Mutual funds are among the most popular financial instruments for building an investment portfolio. This tool pools money from many investors and uses it to invest in a diverse portfolio of stocks, bonds, and other securities. This diversification can reduce risk while offering potential returns. We will discuss the best mutual funds to invest in in 2024, along with essential tips on investing in them.

Here are some top mutual funds to invest in in 2024 based on their past performance, fund management, and growth potential. This is based on annualized returns for a monthly SIP of ₹10,000 for five years, meaning a total investment of 6 lakhs.

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Top Mutual Funds 

Bandhan Infrastructure Fund

This fund has delivered the highest returns among Sectoral-Infrastructure funds over the last 10 years, showcasing its return outperformance. For every unit of risk it takes, the fund produces 20% more returns, highlighting its favorable return-to-risk ratio. The fund’s exit load is 0.5% if redeemed within 30 days.

The top holdings in the portfolio include Kirloskar Brothers Ltd. at 5.69%, Larsen & Toubro Ltd. at 4.35%, Adani Ports and Special Economic Zone Ltd. at 4.04%, and Ahluwalia Contracts (India) Ltd. at 3.38%. The portfolio is heavily invested in the Capital Goods sector, which accounts for 22.51% of the total investment. This is followed closely by the Construction sector at 21.77%. The Services sector represents 9.85% of the portfolio, while the Energy sector comprises 9.84%.

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Invesco India PSU Equity Fund

This fund has achieved the highest returns among Thematic-PSU funds over the past 10 years, demonstrating its strong return outperformance. For every unit of risk it undertakes, the fund delivers 20% more returns, emphasizing its favorable return-to-risk ratio. Notably, it is also the oldest Thematic-PSU fund, underscoring its established presence in the market.

The portfolio’s top holdings feature Power Grid Corporation of India Ltd. at 8.64%, Hindustan Aeronautics Ltd. at 8.57%, Bharat Electronics Ltd. at 8.34%, and NTPC Ltd. at 7.61%. The investment is significantly concentrated in the Energy sector, which makes up 30.95% of the total holdings. The Capital Goods sector follows closely at 29.27%. The Financial sector accounts for 20.89% of the portfolio, while the Services sector represents 7.33%.

Nippon India Power & Infra Fund

This fund has achieved the highest returns among Sectoral-Infrastructure funds over the past 5 years. It also offers a return-to-risk ratio, producing 20% more returns for each unit of risk it assumes.

The portfolio’s top holdings include Reliance Industries Ltd. at 7.48%, Larsen & Toubro Ltd. at 7.16%, NTPC Ltd. at 6.19%, and Kaynes Technology India Ltd. at 4.9%. The Capital Goods sector leads the investments, comprising 24.75% of the total holdings. The Energy sector follows at 22.1%, while the Construction sector makes up 14.71%. The Materials sector also holds a significant portion, accounting for 12.01% of the portfolio.

Nippon India Small Cap Fund

This fund is highly regarded for its consistency, delivering reliable returns within its category. Over the past 10 years, it has achieved the highest returns among Small Cap funds. Additionally, it has provided a 16.86% annual return in 70% of instances for investors who held the fund for at least 5 years. The fund also offers an attractive return-to-risk ratio, generating 20% more returns for each unit of risk it assumes.

The portfolio’s top holdings include HDFC Bank Ltd. at 1.98%, Tube Investments Of India Ltd. at 1.89%, Kirloskar Brothers Ltd. at 1.65%, and Voltamp Transformers Ltd. at 1.55%. The Capital Goods sector dominates the portfolio, representing 20.94% of the total holdings. The Financial sector follows with 11.98%, while the Services sector accounts for 9.61%. Additionally, the Consumer Staples sector holds a significant portion, comprising 7.16% of the portfolio.

ICICI Prudential Infrastructure Fund

Over the past 5 years, this fund has delivered the highest returns among Sectoral-Infrastructure funds. Additionally, it has achieved an 11.71% annual return 70% of the time for investors who held the fund for at least 5 years. The fund also offers a strong return-to-risk ratio, generating 20% more returns for each unit of risk it undertakes.

The portfolio’s top holdings feature NTPC Ltd. at 6.48%, Larsen & Toubro Ltd. at 5.66%, HDFC Bank Ltd. at 4.75%, and ICICI Bank Ltd. at 4.63%. In terms of sector allocation, energy leads at 22.28%, followed by the financial sector at 16.23%. The Construction sector represents 12.09% of the portfolio, while Materials account for 10.89%.

Invesco india PSU Equity Fund

This fund has achieved remarkable return outperformance, generating the highest returns among Thematic-PSU funds over the past 10 years. In terms of return/risk, the fund excels by producing 20% more returns for every unit of risk it takes. Additionally, it stands out as the oldest Thematic-PSU fund in the market, highlighting its long-standing presence and experience.

The top holdings of the fund include Power Grid Corporation of India Ltd. at 8.64%, Hindustan Aeronautics Ltd. at 8.57%, Bharat Electronics Ltd. at 8.34%, and NTPC Ltd. at 7.61%. The fund’s sector allocation is predominantly in Energy, which constitutes 30.95% of the portfolio. This is followed by Capital Goods at 29.27%, Financial at 20.89%, and Services at 7.33%.

SBI PSU Fund

This fund is the second oldest Thematic-PSU fund, reflecting its established history in the market. It also boasts the third lowest expense ratio among actively and passively managed Thematic-PSU funds, highlighting its cost-efficiency in managing investments.

The fund’s top holdings include the State Bank of India, with a significant allocation of 14.19%, followed by GAIL (India) Ltd. at 9.21%, Power Grid Corporation of India Ltd. at 8.99%, and NTPC Ltd. at 4.45%. In terms of sector allocation, the fund is heavily weighted towards Energy, which comprises 35.08% of its holdings. The Financial sector accounts for 21.75%, Insurance represents 9.62%, and Capital Goods makes up 9.20%.

DSP T.I.G.E.R. Fund

The third oldest Sectoral-Infrastructure fund has provided 10.6% per annum returns, if held for at least five years, 70% of the time. The fund’s return-to-risk ratio has generated 20% more returns for every unit of risk taken. However, the fund has an exit load of 1% if units are redeemed within 12 months.

Invesco India Infrastructure Fund

This Sectoral-Infrastructure fund has achieved a 13.96% annual return in 70% of cases for investors who have held it for at least five years. Additionally, the fund has experienced the highest growth in assets under management (AUM) within the Sectoral-Infrastructure category over the last 12 months. For every unit of risk undertaken, it delivers 20% more returns compared to its peers. Furthermore, the fund maintains the third-lowest expense ratio among both actively and passively managed Sectoral-Infrastructure funds.

The top holdings of this fund include Power Grid Corporation Of India Ltd. at 6.9%, Larsen & Toubro Ltd. at 4.85%, Jyoti CNC Automation Ltd. at 3.76%, and NTPC Ltd. at 3.34%. The fund’s sector allocation is heavily weighted towards Capital Goods, making up 37.9% of the portfolio. Energy accounts for 19.37%, followed by Construction at 9.06% and Healthcare at 6.54%.

Franklin Build India Fund

This fund has delivered the highest return among Sectoral-Infrastructure funds over the past decade. It stands out not only for its impressive return but also for its efficient risk management. For every unit of risk taken, the fund produces 20% more returns, highlighting its strong performance relative to the level of risk involved.

The fund’s top holdings include Larsen & Toubro Ltd. at 8.75%, NTPC Ltd. at 5.43%, Reliance Industries Ltd. at 5.03%, and Kirloskar Oil Engines Ltd. at 4.8%. The fund’s sector allocation is dominated by Capital Goods, comprising 23.91% of the portfolio, followed by Energy at 19.87%, Construction at 15.69%, and Services at 10.15%.

How to Invest in Mutual Funds

Investing in good mutual funds is simple. Here are the steps to get started:

1. Determine Your Investment Goals: Identify your financial goals, risk tolerance, and investment horizon. This will help you choose the right type of mutual fund.

2. Choose the Right Mutual Fund: Based on your goals, select the best mutual funds to invest that align with your investment strategy. You can use reputable financial consulting services to get professional advice.

3. Complete KYC Process: To invest in MFs, you need to complete the Know Your Customer (KYC). This means submitting your identity and address proof.

4. Open an Investment Account: You can open an account with a mutual fund distributor, a bank, or directly with the fund house.

5. Start Investing: Decide if you want to invest a lump sum or by a Systematic Investment Plan (SIP). SIPs let you invest a certain fixed amount regularly, reducing the impact of market volatility.

6. Monitor Your Investments: Regularly review your mutual fund investment to make sure it aligns with your financial goals. Make adjustments as needed.

Additional Investment Options Apart from mutual funds, investors can explore other investment avenues like hedge funds and New Fund Offers (NFOs). 

What are Hedge Funds?

These are alternative investments that use various strategies to earn active returns for their investors. They are typically available to accredited investors and involve higher risk compared to mutual funds. These instruments often use sophisticated investment techniques, including short selling, leverage, and derivatives. 

Besides knowing what are hedge funds, it’s also crucial for an investors to know that they can invest in a wide range of assets, including stocks, bonds, commodities, currencies, and derivatives. They can also use leverage to amplify their returns, but this also increases risk. Some common hedge fund strategies include:   

• Long/Short Equity: Investing in both rising (long) and falling (short) stocks.   
• Market Neutral: Constructing a portfolio that is theoretically unaffected by overall market movements.
• Global Macro: Making bets on large-scale economic trends.   
• Event-Driven: Investing in companies undergoing significant events (e.g., mergers, acquisitions).   

• NFOs

New mutual fund schemes offered by fund houses exploring NFOs can be a good idea for investors investing in new and innovative strategies. However, it’s essential to research and understand the fund’s objectives and risks before investing.

Financial Consultants 

For those new to investing or looking to optimize their investment strategy, seeking financial consulting services can be beneficial. Financial consultants can provide personalized advice based on your financial situation, goals, and risk tolerance. They can also assist in stock portfolio management, ensuring your investments are well-diversified and aligned with your objectives.

Conclusion

Investing in MFs can be a smart way to build wealth over time. By choosing the best mutual funds to invest in 2024, you can enhance your financial portfolio and work towards your financial goals. Remember to assess your risk tolerance, investment horizon, and financial target before making any investment decisions. Utilize the expertise of financial consultants, and regularly review and adjust your investments to stay on track. 

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & the certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

FAQ

Introduction:

When individuals invest, they anticipate that their funds will be directed towards a genuine company offering actual products or services, generating real returns. Unfortunately, some fraudsters exploit this trust by channelling investments into fake companies or fraudulent schemes with the intention of stealing the money. This type of financial fraud is referred to as a Ponzi scheme.

In this guide, we will explain how Ponzi schemes operate and provide tips on how to safeguard yourself against these scams.

Overview of Investment Scams

A Ponzi scheme is a deceptive investment fraud that appears legitimate, luring victims with promises of high returns. Understanding the meaning of Ponzi schemes helps investors spot red flags. These scams cost billions annually, with many victims never recovering their losses, as reported by the FBI and SEC.

Importance of Recognizing Ponzi Schemes

A Ponzi scheme targets all kinds of investors with fake returns. Knowing what the Ponzi scheme is and its red flags can protect you from financial loss, stress, and broken futures.

What is a Ponzi Scheme

A Ponzi scheme is named after Charles Ponzi, who defrauded investors in the 1920s with a bogus postage stamp investment. In such schemes, the money from new investors is used to pay returns to earlier investors, creating the illusion of a profitable investment.

Promoters of Ponzi schemes often attract individuals by offering high returns with little to no risk. However, instead of investing the funds, they use the money to repay previous investors and keep a portion for themselves, making it a fraudulent practice.

Definition and Origin

A Ponzi scheme refers to a scam where returns are paid from new investors’ money, not actual profits. A Ponzi scheme, named after Charles Ponzi, lured thousands with false promises of high returns in 1920s Boston.

Key Characteristics

What is a ponzi scheme at its core? A Ponzi scheme involves a central operator promising high returns without real investments. Payouts to the early investors come from new funds (garnered through new investors) and the cycle keeps on repeating. These schemes collapse when new money slows or many investors demand withdrawals, exposing the fraud.

How Ponzi Schemes Operate

Ponzi schemes entice individuals to invest by promising unusually high returns compared to typical investments. The organizer uses the funds from new investors to pay earlier participants, creating the illusion of profitable returns. As a result, investors may feel reassured without fully understanding the mechanics or questioning the sustainability of such high profits.

Due to the seemingly lucrative nature of the scheme, investors often introduce friends and family, expanding the pool of participants. Fraudsters often target close-knit communities, including religious or social groups, resulting in a growing number of victims.

Unlike pyramid schemes, Ponzi schemes don’t necessarily require you to recruit new members. However, your enthusiasm for the perceived gains may lead you to unintentionally promote it to others.

Use of Funds

Where does your money actually go in a Ponzi scheme? Well, the payments to earlier investors create an illusion of returns attracting new investors. In contrast, personal spending by the organizer is happening at substantial levels. While operating costs maintain the façade, the marketing scheme that scamsters run continues to attract new investors.

Almost little to no money goes toward legitimate investments and the actual investments (if any) typically underperform the promised imaginary returns.

Bank records from collapsed schemes often reveal shocking personal expenditures: mansions, yachts, private jets, and luxury goods.

Sustainability Issues

Ponzi schemes are doomed from the start, relying on constant new investment. 

For example, offering 20% annual returns on $100,000 means needing $20,000 yearly—either through real returns (unlikely) or new investors. By year five, $41 million would be needed. These schemes collapse when new investments stop, due to too many withdrawals, or when regulators intervene.

Real-Life Example of Ponzi Scam

The MMM scheme in 1990s Russia, launched by Sergei Mavrodi, promised returns of up to 3,000% and attracted millions amid post-Soviet instability and poor regulation. Aggressive TV ads fueled rapid growth. Its 1994 collapse wiped out around $1.5 billion, causing widespread financial ruin and suicides. Despite prison time, Mavrodi repeated similar scams globally. MMM’s legacy highlights how political chaos and financial illiteracy enable such frauds. Even after the collapse, these schemes typically resurface in a different form, leaving lasting emotional and economic damage.

Common Red Flags of Ponzi Schemes

Unrealistic High Returns

Promises of unusually high returns in quick time (20% or more in a span of days) should raise red flags. If it sounds too good to be true, it likely is.

Unregistered Investments

Ponzi schemes often skip regulatory registration and disclosures. While registration doesn’t ensure safety, it adds transparency. Always check investment status using the SEC’s EDGAR or FINRA BrokerCheck.

Secretive or Complex Strategies

Vague or overly complex investment strategies signal trouble. Real investments can be explained clearly. If you don’t understand how it works, walk away.

Issues with Documentation

Be cautious of inconsistent statements, missing paperwork, or resistance to withdrawals. Legitimate firms are transparent and provide accurate, timely records.

Notable Ponzi Schemes in History

The ‘Original’ Charles Ponzi Scheme

The original Ponzi scheme collapsed in 1920 after Charles Ponzi defrauded investors of about $15 million (roughly $200 million today).

Ponzi’s “investment” involved International Postal Reply Coupons with a promise of 50% returns in 45 days. The reality was that no actual investment strategy existed. The scheme lasted less than one year before collapse.

At peak operation, Ponzi collected $1 million weekly from eager investors. His collapse triggered bank runs and financial panic in Boston.

After serving prison sentences, Ponzi died penniless in Brazil in 1949.

The Bernie Madoff Fraud

The largest Ponzi scheme in history operated for decades before its 2008 collapse. Bernard Madoff’s fraud reached an estimated $65 billion.

Key aspects: Madoff targeted wealthy individuals, charities, and institutional investors. He claimed consistent 10-12% annual returns regardless of market conditions. He operated behind a legitimate brokerage business. Madoff used his reputation as former NASDAQ chairman to build trust. The scheme collapsed during the 2008 financial crisis when investors needed withdrawals.

Madoff received a 150-year prison sentence and died in prison in 2021. Many victims recovered only pennies on the dollar, even with extensive recovery efforts.

Other major Ponzi schemes include Allen Stanford ($7 billion), Tom Petters ($3.7 billion), and Scott Rothstein ($1.2 billion).

How to Recognize a Ponzi Scheme

• Be cautious if an investment promises guaranteed returns with little or no risk —genuine investments always involve some risk.
• Avoid schemes that pressure you into making hasty decisions, especially if you feel uncomfortable.
• Check for negative reviews or complaints about the company online, as they could be red flags.
• Be wary if the investment uses confusing or unfamiliar terms, making it difficult to understand.
• If there is a lack of transparency on how profits are made, it may be suspicious.
• Be skeptical if someone asks you to keep the investment a secret.
• Difficulty obtaining proper paperwork or official documentation is another warning sign.
• If you are unable to withdraw your funds or are being offered higher returns to stay invested, it could indicate a Ponzi scheme.

Example of Ponzi Scheme:

The Bernie Madoff Ponzi Scheme: Bernie Madoff started his career as a reputable stockbroker in the 1960s. However, beginning in the early 1980s, his business evolved into the largest Ponzi scheme ever recorded. Like typical Ponzi schemes, Madoff enticed investors by offering high returns with little risk. In reality, they were contributing to a façade—Madoff utilized their funds to pay earlier investors.

Additionally, Madoff generated income through a practice known as “pay for order flow” (PFOF), which involved charging fees to facilitate transactions between investors and the businesses they supported. Since these businesses were essentially fictitious (or were simply other investors), the PFOF led to investors overpaying, while Madoff kept the surplus for himself.

When the scheme unravelled in 2009, it resulted in losses for over 13,000 investors totalling between $65 billion and $74 billion. Madoff was subsequently arrested and sentenced to 150 years in prison, where he passed away in 2021.

Steps to Take if You Fall Victim to a Ponzi Scheme

• Stop All Payments: Immediately cease any payments to the scheme to prevent further losses.
• Discontinue Communication: Cut off all interactions with the scammers to protect yourself.
• Gather Evidence: Keep a record of all communications with the fraudulent company, including emails and letters, as this may serve as important evidence.
• Report the Fraud: Inform the relevant authorities about the Ponzi scheme to help initiate an investigation.
• Protect Your Identity: Stay vigilant against potential identity theft or additional scams, as scammers may sell your personal information to others.
• Be Wary of Recovery Scams: Exercise caution regarding offers from individuals claiming to be law enforcement or legal representatives who promise to help you recover your lost funds in exchange for a fee.

Key Differences Between Ponzi Schemes and Pyramid Schemes

While Ponzi schemes and pyramid schemes are often conflated, they possess distinct characteristics.

A Ponzi scheme typically requires investors to make a single upfront investment and then passively await their returns. This type of scheme primarily depends on one individual or a small group to recruit new investors, who then fund the payouts to earlier participants.

In contrast, a pyramid scheme incentivizes participants to actively recruit new investors. Leaders of pyramid schemes often allow investors to collect initiation fees from their recruits, with a portion of these fees redistributed to earlier investors and the scheme leaders.

In summary, the main distinctions are as follows:

• Ponzi Scheme: Leaders defraud investors through large initial investments, using funds from new investors to pay returns to earlier ones.
• Pyramid Scheme: Leaders accept smaller initial investments while encouraging participants to recruit new investors, redistributing some of the funds to previous investors and the leaders themselves.

Structural Differences

People often confuse these related but distinct frauds. Here are some key differences between ponzi scheme and pyramid scheme –

A Ponzi scheme uses new investor funds to pay earlier ones, with a central operator controlling all money and posing as a legitimate business. 

A pyramid scheme on the other hand, relies on recruitment-based earnings, with commissions flowing upward. Both eventually collapse, but differ in structure and how returns are generated.

Recruitment Methods

A Ponzi scheme recruits through promises of passive investment returns, claims of special investment strategies, exclusivity and prestige, and apparent sophistication.

Pyramid schemes recruit through direct sales opportunities, explicit recruitment incentives, “be your own boss” messaging, and community and culture emphasis.

Sustainability and Collapse

A Ponzi scheme often lasts longer due to central control, allowing strategic payouts, limited withdrawals, and fake statements that hide the truth. The reinvested “earnings” delay its collapse. 

In contrast, pyramid schemes collapse faster as constant recruitment becomes unsustainable. Their structure is more transparent, with less control over funds, making them easier to detect. Regulatory actions typically occur sooner here, cutting their lifespan short compared to Ponzi schemes, which can operate for years before being exposed.

Legal Implications and Consequences

Regulatory Actions

Agencies, including the Securities and Exchange Commission (SEC), Federal Bureau of Investigation (FBI), state securities regulators, and Financial Industry Regulatory Authority (FINRA), target investment fraud. These agencies can freeze assets, file civil charges, refer cases for criminal prosecution, issue cease and desist orders, and impose fines and penalties. The SEC maintains a whistleblower program that rewards those who report securities violations.

Penalties for Organizers

Those who run Ponzi schemes face severe consequences: Federal prison sentences (often decades long), asset forfeiture and restitution orders, lifetime bans from financial industries, civil judgments beyond criminal penalties, and tax fraud charges (most schemes involve tax evasion).

Impact on Investors

Victims of Ponzi schemes rarely recover full losses. Recovery involves lengthy legal processes, asset distribution, and tax issues. Beyond money, victims face stress, family strain, and shame.

How to Protect Yourself from Ponzi Schemes

Conduct Due Diligence

Before investing, research thoroughly:

• Check the firm’s history and executive backgrounds
• Look for complaints or lawsuits
• Review audited financials
• Question inconsistencies

Verify Registration

Confirm legitimate registration:

• Check if the firm is registered with the SEC.
• Verify individual brokers through FINRA BrokerCheck.
• Contact your state securities regulator.
• Confirm that regulatory status matches the investment type.

Be Skeptical of High Returns

Apply critical thinking:

• Compare promised returns to market benchmarks. 
• Question “guaranteed” returns with no risk. 
• Be wary of consistent returns regardless of market conditions. 
• Remember that legitimate high returns come with high risk.

Consult Financial Advisors

Before investing, consult a financial advisor or a wealth advisory firm, a securities attorney, or an accountant to understand potential risks and tax implications. The cost is minimal compared to losses from scams. Review your portfolio carefully. Knowing what is a Ponzi scheme and recognizing the Ponzi scheme’s meaning in real situations can help protect your finances from devastating fraud and ensure long-term security. Always seek second opinions before committing large amounts to unfamiliar or complex investments.

In conclusion, a Ponzi Scheme in India poses significant risks to investors. Understanding the characteristics and red flags associated with such schemes is crucial for safeguarding one’s investments. By taking proactive steps, such as conducting thorough research, understanding investment strategies, and remaining cautious of too-good-to-be-true promises, investors can protect themselves from falling victim to these fraudulent schemes. 

*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

FAQ

Have you ever faced an unexpected medical emergency that not only caused stress but also triggered financial worries? In today’s world, where healthcare is rapidly advancing and financial stability is a priority, cashless health insurance has become an essential component of modern healthcare solutions. This progressive insurance model streamlines the payment process for medical treatments and enables people to access high-quality healthcare services more conveniently.

What is Cashless Health Insurance?

Cashless health insurance allows the insurance provider to directly cover the medical expenses on behalf of the insured. The key requirement is that the total cost of treatment must fall within the insured sum, and the treatment should be conducted at a hospital within the insurer’s network.

This type of insurance is highly advantageous during both planned treatments and unexpected medical emergencies. With a cashless policy, the insurance company handles all hospital and treatment expenses directly, giving you the freedom to focus on other priorities, such as arranging for treatment or completing hospital admission procedures.

Types of Cashless Health Insurance Policies in India

In India, cashless health insurance policies are designed to simplify the healthcare process by allowing insured individuals to receive medical treatment at network hospitals without the need for upfront payment. Below are the three main types of cashless health insurance policies available, each catering to specific needs:

• Cashless Individual Health Insurance: This policy is tailored for individuals who wish to have personal medical coverage. It provides protection against medical expenses incurred due to illness, injury, or hospitalization. The benefits typically include coverage for inpatient treatments, pre-hospitalization expenses (for a set period before admission), post-hospitalization care, and sometimes even day-care procedures. 

For example, if an individual undergoes surgery or treatment for an illness, the policy covers their medical bills at a network hospital without them having to make any upfront payment.

• Cashless Family Floater Health Insurance: The family floater plan offers comprehensive coverage for an entire family under a single policy. Instead of taking out separate health insurance for each family member, a floater plan combines the coverage limit, allowing any family member listed in the policy to use the insured amount. This type of plan is especially useful in cases where more than one family member requires hospitalization in a single year. 

For instance, if both parents and children need medical treatment during the year, the family floater plan ensures that the expenses for each member are covered, up to the sum insured. It provides financial relief and flexibility, as unused benefits by one family member can be utilized by another.

• Cashless Senior Citizen Health Insurance: This policy caters to the healthcare needs of senior citizens, usually those aged 60 years and above. Cashless senior citizen policies cover hospitalization, critical illnesses, and sometimes even pre-existing conditions, subject to waiting periods. These policies often come with added benefits such as annual health check-ups, coverage for specific diseases prevalent in older adults, and higher insured amounts to cater to more frequent hospitalizations. 

For example, a senior citizen suffering from a chronic condition like diabetes can avail of cashless treatment under this plan at network hospitals without the hassle of upfront payments.

How Does Cashless Health Insurance Work

Here’s a step-by-step explanation of how cashless health insurance works:

Understanding Cashless vs. Reimbursement Claims

When you pay premiums for a health insurance policy, you are ensuring coverage for medical expenses for you and your family. When it comes to settling these expenses, you have two options: cashless or reimbursement claims. Here’s a breakdown of how each method works:

• Cashless Claims: With cashless claims, you don’t need to pay for your treatment upfront if you’re receiving care at a hospital that’s part of your insurer’s network. The insurance company directly settles the bill with the hospital, allowing you to avoid any immediate cash outlay.

• Reimbursement Claims: For reimbursement claims, you first pay the hospital bill out of pocket. After treatment, you can then apply to your insurance company for reimbursement by submitting the necessary documents. This process is typically used when treatment occurs at a non-network hospital, where you must handle payment initially and claim it back from your insurer later.

Benefits of Cashless Health Insurance:

• Swift Access to Treatment: With a cashless health insurance policy, you can receive prompt medical attention without the stress of hefty hospital bills. Simply inform the hospital’s helpdesk within 24 hours in an emergency or within 48 hours for planned admissions to ensure smooth processing.

• All-Inclusive Benefits: This type of policy offers a hassle-free approach to managing health insurance. It includes comprehensive coverage from settling medical expenses to covering ambulance costs, and more.

• Coverage While Traveling: Health issues can occur while you’re on the move. Fortunately, a cashless insurance policy allows you to access treatment at any of the networked hospitals nationwide.

• Tax Advantages: Premiums paid for cashless health insurance for individuals, families, or senior citizens qualify for tax deductions under Section 80D of the Income Tax Act, providing additional financial benefits.

What Cashless Health Insurance Covers and What It Doesn’t

Coverage Includes:

• Expenses incurred before and after hospitalization.
• Costs related to in-patient care, including daily room charges, medical fees, and ICU services.
• Ambulance fees.
• Annual health check-ups.
• Day-care procedures.
• AYUSH (Ayurveda, Yoga, Unani, Siddha, and Homeopathy) treatments.

Exclusions:

• Pre-existing medical conditions.
• Cosmetic or plastic surgery.
• Injuries resulting from self-harm.
• Treatments for dental issues and hearing loss.
• Costs related to illegal activities, including substance abuse.

In India, several major insurance providers offer cashless health insurance. Some of the prominent ones include:

• Star Health & Allied Insurance 
• Max Bupa Health Insurance 
• ICICI Lombard General Insurance 
• HDFC ERGO Health Insurance 
• New India Assurance 
• Oriental Insurance Company 
• United India Insurance 
• Bajaj Allianz General Insurance 

In conclusion, cashless health insurance offers a hassle-free way to receive medical treatment without worrying about payments. From easing financial pressure during emergencies to offering access to top hospitals, cashless health insurance can be a valuable part of your financial planning. By understanding the cashless insurance claim process and ensuring you select a plan that covers a wide network of hospitals, you can stay prepared for life’s uncertainties.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

FAQ

Mutual funds have become an increasingly popular investment vehicle for both new and seasoned investors. Their appeal lies in the numerous benefits they offer, making them a versatile and advantageous choice for growing wealth. Let’s delve into the many benefits of mutual funds, providing insights into why they are an excellent addition to any investment portfolio.

What are the Benefits of Mutual Funds?

Mutual funds are pooled investment vehicles managed by professional fund managers. These managers invest the collected funds in various securities, such as stocks, bonds, and other assets, aiming to generate returns for the investors. Let’s explore the benefits of MF in detail. 

Diversification

One of the primary benefits of investing in mutual funds is diversification. By investing in a mutual fund, you gain exposure to a broad range of securities. Having investments in different securities ensures the impact from any one security underperforming doesn’t affect the overall portfolio. 

Professional Management

Mutual funds are managed by experienced professionals who make informed decisions based on thorough research and market analysis. This professional management is one of the significant benefits of investing in MF. 

Liquidity

Liquidity is another major advantage of mutual funds. Investors can easily buy or sell mutual fund units at the current net asset value (NAV), providing flexibility and quick access to their money. This liquidity ensures that you can convert your investments into cash without significant delays, which is especially beneficial in times of financial need.

Affordability

With relatively low minimum investment requirements, they are accessible to a wide range of investors, including those who may not have substantial capital to invest. This affordability allows individuals to start investing with modest amounts and gradually build their portfolios.

Tax Benefits

In many regions, including India, mutual funds offer tax benefits that make them an attractive investment option. For instance, Equity-Linked Savings Schemes (ELSS) provide tax deductions under Section 80C of the Income Tax Act in India. These tax benefits of mutual funds in India not only help in wealth creation but also in tax planning and savings.

Benefits of Regular Mutual Funds

Regular mutual funds provide the added benefit of systematic investment plans (SIPs). SIPs allow investors to invest a fixed amount regularly, promoting disciplined investing and rupee cost averaging. This method helps in reducing the impact of market volatility and ensures that investors do not need to time the market. To put it in perspective, if you start a SIP of Rs 10,000 today, and considering the average growth of Nifty 50, which is 12% per annum, within 30 years, your investment will be Rs 36 lakh, and it will grow to Rs 3.52 crores.

CALCULATE YOUR SIP WITH SIP CALCULATOR

Potential for Higher Returns

Mutual funds have the potential to deliver higher returns compared to traditional savings instruments like fixed deposits and savings accounts. By investing in a diversified portfolio managed by professionals, mutual funds can generate substantial returns over the long term, helping investors achieve their financial goals.

ALSO READ: MUTUAL FUNDS VS EQUITY

Transparency and Regulation

Mutual funds are highly regulated by financial authorities, ensuring transparency and protecting investors’ interests. Fund managers are required to provide regular updates and detailed information about the fund’s performance, holdings, and strategies. This transparency helps investors make informed decisions and trust the integrity of their investments.

Are Mutual Funds Worth it in India?

In India, mutual funds have gained popularity due to benefits of mutual funds and their potential for wealth creation and tax benefits. The diverse range of mutual fund schemes caters to different risk appetites and investment goals. Additionally, the regulatory framework ensures investor protection and promotes a healthy investment environment, making mutual funds a preferred choice for Indian investors. 

Whether you are a novice investor or an experienced one, understanding the advantages of mutual funds can help you make informed investment decisions you can make this process smoother with some investment advise from SEBI registered advisory. They can help you with build a robust portfolio by considering stock intrinsic value and suggesting some debt mutual funds. 

*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

FIND OUT WHY BILLIONAIRES DON’T INVEST IN MUTUAL FUNDS.

FAQ

Retail investment in mutual funds is growing rapidly in India. As of March 2024, there were 17.8 crore mutual fund accounts, with 91.4 percent belonging to retail investors, according to the Association of Mutual Funds of India (AMFI). Retail investors usually have a ticket size of less than Rs. 2 lakhs.

Mutual funds are a key part of modern investing, providing a straightforward and diverse way to invest in financial markets. However, the many choices can be confusing for beginners. This article aims to simplify things by explaining different types of mutual funds based on asset class, structure, risk profile, and their specific advantages.

Understanding Mutual Funds

Before discussing specific types, let’s establish a foundational understanding of mutual funds and the different types of mutual funds in India. A mutual fund pools money from multiple investors and invests it in a basket of securities, such as stocks, bonds, or a combination of both. This diversification helps spread risk and potentially smooth out market fluctuations. 

An asset management company (AMC) collects money from various individual and institutional investors to buy different mutual funds, such as stocks, debentures, and other assets. Investors are given fund units based on their investment amount and can buy or redeem them only at the current net asset value (NAV). The NAV changes daily, reflecting the performance of the underlying assets. 

Mutual funds are regulated by the Securities and Exchange Board of India (SEBI). One key benefit of different types of mutual funds is that investors can diversify their portfolios with relatively low investment amounts.

Types of Mutual Funds Based on Asset Classes

Mutual funds can be broadly classified based on the primary asset class they invest in:

Equity Funds

These funds primarily invest in company stocks, aiming for capital appreciation through long-term growth. Let’s delve into the various types of equity mutual funds, each catering to different risk appetites and investment horizons.

Market Capitalization-Based Funds:

• Large-Cap Funds: These funds focus on established, blue-chip companies with a proven track record. Due to the stability of large corporations, they are considered less volatile but may offer lower potential returns compared to other equity categories.
• Mid-Cap Funds: These funds invest in companies with promising growth potential, positioned between large and small-cap companies. They offer a balance between risk and reward, with the possibility of higher returns but also greater volatility.
• Small-Cap Funds: Target emerging companies with the potential for high growth and significant risk. These funds are suited for investors with a long-term perspective and a tolerance for market fluctuations.
• Multi-Cap Funds: Enjoy the flexibility to invest across the entire market capitalization spectrum, from large to small caps. This diversification helps manage risk while offering the potential for growth across various company sizes.

Investment Strategy-Based Funds

• Focused Funds: These funds concentrate their holdings in a limited number of companies (typically 20-30) that the fund manager believes have strong growth prospects. This concentrated approach offers the potential for high returns but also carries increased risk.
• Dividend Yield Funds: Prioritize companies with a history of paying regular dividends. This strategy aims to generate consistent income for investors while allowing for capital appreciation in the underlying stocks.

– Tax-Saving Option:

• ELSS (Equity Linked Savings Scheme) Funds: Offer the dual benefit of growth potential and tax savings. These funds invest primarily in equities and come with a 3-year lock-in period. Investments in ELSS qualify for tax deductions under Section 80C of the Income Tax Act.

ALSO READ: WHAT ARE ASSET CLASSES? 

Debt Funds

Invest in fixed-income securities like government, corporate, and money market instruments. These funds generally offer lower risk and more predictable returns than equity funds. Subcategories include:

• Liquid Funds: Invest in highly short-term debt instruments with maturities of up to 91 days. This translates to high liquidity, meaning you can easily access your invested money. They are ideal for parking short-term funds and offer returns that are typically higher than traditional savings accounts.

• Overnight Funds: As the name suggests, these funds invest in securities maturing within a single day. This ultra-short maturity minimizes credit risk, making it a very safe option. However, the returns offered by overnight funds are also lower.
• Ultra Short Duration Funds: Invest in a mix of short-term debt instruments with maturities ranging from 90 to 180 days. These funds offer a slightly higher potential return than liquid funds while maintaining a relatively low risk profile.
• Low Duration Funds: These funds invest in debt instruments with maturities between 6 and 12 months. They offer a balance between liquidity and potential returns, but the credit risk is slightly higher than shorter-duration funds.
• Money Market Funds: These funds invest in money market instruments with maturities of up to one year, maintaining high liquidity. These funds invest in treasury bills, commercial papers, certificates of deposits, and repurchase agreements, offering better interest rates than traditional fixed-income instruments like savings accounts and fixed deposits.
• Dynamic Funds: These funds can adjust their Macaulay duration to maximize returns. Fund managers shift the portfolio’s duration by reallocating between short and long-term debt instruments. As interest rates and debt instrument returns are inversely related, short-term debt instruments are less affected by rising rates, while long-term instruments perform better when rates fall. 
• Credit Risk Funds: Credit Risk Funds aim for high returns by taking significant risks. Previously known as Credit Opportunities Funds, SEBI renamed them in 2017. SEBI mandates that these funds invest 65% of their corpus in AA-rated or lower corporate bonds, with no restrictions on the remaining 35%. These funds lend to low-credit-rated corporations with potentially poor repayment histories in exchange for high interest rates.
• Banking and PSU Funds: Banking and PSU Funds are low-risk due to significant investments in banks and government-owned entities. SEBI requires these funds to invest at least 80% of their corpus in banks, public sector undertakings, public financial institutions, and municipal bonds. The remaining 20% can be invested without restrictions, posing a risk if high-risk corporate entities default.
• Gilt Funds: Gilt Funds invest at least 80% of their corpus in government securities, making them one of the safest debt investments. The remaining 20% can be invested in other assets. Another type of Gilt Fund maintains a Macaulay duration of 10 years while keeping a minimum of 80% of their corpus in government securities, exposing them to interest rate risk in a rising interest rate environment.

YOU MIGHT WANT TO READ: DEBT MUTUAL FUNDS VS DIRECT EQUITY

Hybrid Funds

Hybrid mutual funds offer a compelling option for investors seeking a balance between growth potential and risk management. These funds combine equity (stocks) and debt (bonds) investments within a single portfolio, catering to a wider range of risk tolerances than pure equity or debt funds.

SEBI (Securities and Exchange Board of India) regulations categorize hybrid funds based on the proportion of equity and debt they hold. Here’s a breakdown of some popular subcategories:

• Conservative Hybrid Funds: These funds prioritize stability, with a debt allocation ranging from 75% to 90% of the portfolio. The remaining 10% to 25% is invested in equities, offering growth potential with a managed risk profile.
• Balanced Hybrid Funds: As the name suggests, these funds strive for a balanced approach. They typically invest 40% to 60% in equity and equity-related instruments and a similar proportion in debt instruments. This balanced allocation offers the potential for moderate growth alongside income generation.
• Aggressive Hybrid Funds: Designed for investors comfortable with higher risk, these funds emphasize equity more. They may allocate 65% to 85% of their assets to equity, aiming for significant growth potential with a corresponding increase in risk.
• Multi Asset Allocation Funds: Multi-asset allocation funds take diversification a step further. They invest in a broader range of asset classes beyond equity and debt. This might include real estate, gold, or commodities. These funds aim to reduce overall portfolio risk and capitalize on opportunities across different market segments by spreading investments across various asset classes.
• Arbitrage Funds: Arbitrage funds employ a unique strategy to generate returns. They exploit price discrepancies between similar securities traded on different markets. Arbitrage funds aim to capture the profit from the price difference by simultaneously buying and selling these securities. However, this strategy is complex and requires significant expertise from the fund manager.

Types of Mutual Funds Based on Structure and Management

Mutual funds types are  based on their structure and management style too, such as:

• Open-Ended Funds: Open-ended funds, a frequent recommendation in financial advisory, enable investors to consistently buy or redeem shares based on the daily net asset value (NAV) calculation.
• Closed-Ended Funds: Issue a fixed number of shares at an initial public offering (IPO). These shares are then traded on stock exchanges, and their market price can fluctuate from the NAV.
• Index Funds: Passively track a specific market index, like the Nifty 50, to replicate its performance. This approach offers lower fees compared to actively managed funds.
• Actively Managed Funds: The fund manager actively selects investments based on their analysis and market outlook, aiming to outperform a benchmark index.

Types of Mutual Funds Based on Solutions

• Retirement Mutual Funds: Also known as pension funds, Retirement Mutual Funds are designed for long-term investments to provide regular income during retirement. Investors can receive income until the corpus is depleted or withdrawn. These funds have a lock-in period of 5 years or until retirement age, whichever comes first. They typically invest in lower-risk options like government securities to ensure stability and consistent income for retirees.
• Children’s Mutual Funds: Children’s Mutual Funds are intended for long-term financial planning for a child’s education, marriage, and welfare. These funds have a lock-in period of at least 5 years or until the child reaches adulthood, whichever comes first. They invest in equity and debt securities, allowing investors to choose asset allocation based on risk tolerance.

Other Asset Classes: Some mutual fund types invest in alternative asset classes like real estate or commodities, offering diversification beyond traditional stocks and bonds.

Risk and Return: Understanding the Trade-Off

The level of risk associated with a type of mutual fund is a crucial factor to consider. Generally, higher potential returns come with greater risk. Here’s a simplified breakdown:

• Equity Funds: Carry higher risk due to stock market fluctuations but offer the potential for high capital appreciation.
• Debt Funds are generally considered less risky than equity funds. They offer predictable income streams with lower potential for growth.
• Hybrid Funds: Offer a balance between risk and return depending on the asset allocation strategy.
• Other Asset Classes: These can vary significantly in risk depending on the specific asset class.

Benefits of Mutual Funds: Why Consider Them?

Different mutual fund types offer several advantages for investors, including:

• Diversification: Owning a single share of a mutual fund provides exposure to a basket of securities, mitigating risk compared to investing in individual stocks or bonds.
• Professional Management: Fund managers with expertise actively manage the portfolio, taking the burden of security selection and market analysis off investors.
• Accessibility: Mutual funds allow investors to participate in the financial markets with relatively low investment amounts compared to buying individual securities.
• Liquidity: Open-ended mutual funds offer easy redemption of shares, providing investors with access to their funds when needed (except for lock-in periods in specific schemes).
• Transparency: Mutual funds provide regular disclosures about their holdings and performance, allowing investors to monitor their investments.

Investing doesn’t have to be a mystery. You can unlock a world of financial opportunities by understanding mutual fund types, risks, and benefits. Remember, your ideal fund hinges on your risk tolerance and goals. Consult a financial advisor for personalized guidance on your investment journey.

*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

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