7 things about mutual funds every indian should know

for investors who are not very 'stock market savvy', mutual fund instruments are the most preferred mode of investments. and why shouldn't it be – they are easy to apply, offer great returns and do not require constant monitoring and research, unlike other stock market-linked products.

however, even though this instrument is easy and seamless – there are a few things you should keep in mind before dipping your toes into the world of mutual fund investments:

1. types of mutual funds

contrary to popular opinion, mutual funds are not only equity-linked. there can be several different types of mutual funds, including equity and debt funds. there are also mutual funds that are industry-specific, investing only in scrips in a specified sector.

2. past performance of the fund

while there are many funds in the market, not all are known to be successful or revenue-generating. hence, it is always prudent to study the fund's past performance and returns to ensure you are purchasing the right product that suits your long-term financial goals well.

3. history and reputation of fund managers

mutual funds managed by fund managers who are veterans or established in the industry are more likely to make reliable, worthy and risk-equivalent decisions than newer, less credible fund managers. thus, it is essential to know the fund manager's profile handling the fund before purchasing any units.

4. exit and entry load

purchasing and redeeming mutual fund investments has a cost attached to it. this cost is known as entry load and exit load. entry load is the cost incurred when you purchase the mutual fund, and exit load is the cost charged when you redeem your investments at the end of the tenure. both these charges are calculated at a certain percentage of your investments (usually 1%).

5. lock-in period

most mutual fund schemes available in india are subject to a lock-in period. ranging from 3 months to 3 years, this is the time frame between which the mutual fund cannot be redeemed or sold/can be redeemed only on payment of a penal amount.

6. systematic investment plans

if you want to make savings and investments a habit but lack the discipline to invest regularly, mutual fund schemes have an option called systematic investment plans. you can instruct your broker to debit a certain amount from your bank at regular intervals and purchase mutual fund units on your behalf.

7. tax treatment

mutual fund investments are subject to short term and long term capital gains taxes depending on when they are redeemed. hence, before making a redemption application, it is best to consult with your tax advisor to ensure your tax liability is minimal.

before parking your money into a fund, it is advisable to evaluate the scheme on quantitative and qualitative parameters. you can also contact your wealth manager or refer to online calculators by cred that makes financial decisions much more manageable and user-friendly.