Understanding of Mutual Funds, SIP , SWP and Mutual Fund Performance | Technical, Finance, Investment Questions

Understanding of Mutual Funds, SIP , SWP and Mutual Fund Performance

Sushmita Pal

3 months ago

Are you searching for a method of improving your investment profits?


Consider mutual funds. The world of investing is greatly influenced by mutual funds, where people with little money invest together. It is invested in a spread portfolio of stocks, bonds, or similar assets.

However, there are a number of things that you need to know before venturing into the world of mutual funds. One should look at the fund’s expense ratio, its investment objective, and the performance of its fund manager.

Nevertheless, there is an aspect that shouldn’t be ignored – the historical performance of the mutual fund. Analyzing a fund’s historical performance gives you an idea of its ability to provide returns and move through market fluctuations.


In this article, we discuss the most crucial elements to consider before investing in a mutual fund and list the best-performing top 10 Mutual Funds within a decade. 


Understanding of Mutual Funds


The Mutual fund is an investment option that allows people to put their money together. It invests in diversified stock, bonds, or other asset portfolios. It is a fund created by a professional fund manager who takes up the job of choosing and monitoring the investments on behalf of the investor.


Advantages of Investing in Mutual Funds

They are important to investors because they have numerous benefits.

  1. It spreads the risk and offers diversification as opposed to placing the investment on just one security.
  2. It consists of qualified and experienced fund managers who have enough insight to guide good investment choices.
  3. Liquidity is also present in mutual funds, permitting the investor to sell and buy its stocks daily.




Investment Types in Mutual Funds


Many ways exist for investors to go with mutual funds. All the investments have their sets of risks and returns. So, let's take a look at some popular investment options:


  1. Systematic Investment Plan (SIP)
  2. Systematic Transfer Plan (STP)
  3. Systematic Withdrawal Plan (SWP)


1.Systematic Investment Plan (SIP)


Mutual Funds has one of the famous investment options called The Systematic Investment Plan (SIP). It makes it possible for investors to invest a specific amount every month or even quarterly.

The compound effect is the power behind SIP. This is a compounding effect, where returns from the original investment can be reinvested, thereby leading to higher returns. Accumulated over some time, this can result in huge wealth creation.


Benefits :

SIP promotes disciplined investing. Such an approach eliminates the temptations associated with impulse decisions of making investments using a fixed amount. This method of averaging the expenses of investments averages out costs in order to reduce the impact of market fluctuations.


2.Systematic Transfer Plan (STP)


Mutual funds also offer a systematic transfer plan called STP, where fixed installments are transferred from one scheme to the next in periodic intervals. It helps to maximize returns while minimizing investment risk.

It allows investors to transition slowly their investments from one mutual fund scheme to the other. The scheme is also beneficial to investors who strive to keep their allocations intact or have a gradual withdrawal from one scheme and reinvestment into another.


Benefits :

STP offers risk management, rupee cost averaging, and flexibility. Instead of making lump sum transfers into an investment, investors make incremental transfers, which helps smooth out the effects of changes in the market. This enables the averaging of purchase prices, which in turn can mean greater returns. STP is also flexible in terms of frequency and amount of transfers.


3.Systematic Withdrawal Plan (SWP)


One type of investment strategy offered for mutual funds is the Systematic Withdrawal Plan (SWP). SWP is well suited for situations in which people need a steady cash flow of investment to support their monthly expenditure or retirement purposes.


Benefits :

The company offers monthly payments that can be withdrawn periodically and tax exemptions. Investors make use of a SWP to make available predictable cash flow while maintaining their investments.

In summary, SWP grants investors a convenient way of withdrawing money from their investments in order to meet their expenses as well as their objectives.




Factors Influencing Mutual Fund Performance


Some major issues that might determine the success of mutual fund performance include. Here are some of the main factors that can impact mutual fund performance:


1. Market Conditions : 

Mutual fund performance may also depend on the overall state of the market. Mutual funds usually perform well during times of economic growth and adverse market conditions. However, when there are recessions in the economy and a bear market, mutual funds might fail to deliver some positive returns.


2. Fund Manager Expertise : 

The competency of a fund manager may be one of the influential determinants of mutual fund performance. An experienced and learned fund manager can assess the market directions, place the appropriate investments, and rebalance the holdings with the aim of outperforming the markets. However, an amateur or poor-performing fund manager could fail to perform consistently.


3. Asset Allocation : 

How well a mutual fund performs often depends on how many assets are allocated in a mutual fund. Diversification of a portfolio with different assets like stocks, bonds, and cash helps to reduce investment risks and provide steadier returns. However, a portfolio that is unbalanced or concentrated on a single stock could expose the fund to higher risks as well as fluctuation rates.


4. Expense Ratio : 

The term expense ratio denotes the yearly fee levied on investors as well. Such expenses may include management fees, administrative costs, and distribution costs. This means that a high expense ratio can eat into the fund’s returns and thus adversely affect performance. Therefore, the expense ratio should be taken into account when comparing mutual funds.


5. Investment Strategy : 

The performance of a mutual fund depends on its investment strategy. Various funds may operate on differing approaches comprising growth investing, value investing, or index investing. The success of a mutual fund depends on the success of each of its strategies, which come with its own set of risks and rewards in the prevailing market conditions.


6. Fund Size : 

The other thing that can affect the performance is the size of a mutual fund. A smaller fund may be less rigid and more apt to capture market opportunities quickly. But bigger funds may be in a better position with respect to the availability of resources and a variety of investment opportunities. When it comes to choosing a mutual fund, the size of the fund must always be taken into account because it can affect performance.


7. Fund Objectives : 

Mutual funds performance can also be affected by objectives. Some funds aim at capital gain, while others seek income generation. Still, others try to combine capital gain and income generation. Investors need to align their investment intentions with the intended objectives of the fund in order to fit well together and yield the best results possible toward achieving the intended financial goals.


8. Investor Behavior : 

Last but not least, investor behavior can influence greatly mutant fund performance. Emotional decision-making in investing, such as selling panic on market low or funds hunting high performance, can result in bad investment outcomes. Optimal mutual fund performance can only be achieved if investors remain patient and take a very long-term view of their investments.






Top 10 High-Performing Mutual Funds in the Last 10 Years


  1. HDFC Large and Mid Cap Fund
  2. Parag Parikh Flexi Cap fund
  3. Reliance Large Cap
  4. ICICI Prudential Bluechip Equity Fund
  5. DSP ELSS Tax Saver Fund
  6. Aditya Birla Sun Life Money Manager Fund
  7. Tata Equity P/E Fund
  8. ICICI Prudential Equity & Debt Fund
  9. PGIM India Midcap Opportunities Fund
  10. Mirae Asset India Equity Fund



1. HDFC Large and Mid Cap Fund

HDFC large and mid-cap funds are among the best options for beating inflation growth. Medium-risk investors with a time horizon of 10-15 years (minimum 5).


Objective :

The objective of this investment is to make capital gains through mostly investing in large companies. This is because it enhances a level of risk, which enables investors to get more profits compared to what they could have from conventional savings accounts or bonds.



2.Parag Parikh Flexi Cap fund

Parag Parikh Flexi Cap fund will work best for any investment that requires long-term growth in a portfolio. It invests in various stocks across different sectors that may provide higher returns over investment in a single stock or sector.


Objective :

This investment strategy aims to realize long-term capital gain through investing mainly in equity and equity-related instruments of different companies in various sectors.



3.Reliance Large Cap

The benchmark consistently gets beaten by Reliance Large Cap, increasing its credibility among investors. This fund is secured because some of the great companies, such as SBI, Axis Bank Ltd., ICICI Ltd., HDFC Bank Ltd., L&T, and ITC Ltd, are major shareholders.


Objective :

This fund holds a two-fold investment objective:

The first target is long-term capital gains. The securities to be invested must have a market cap lying between the maximum and minimum market caps of the BSE 200 Index.

The second aim of the fund is to invest in debt and money market securities in order to achieve steady and consistent returns.



4.ICICI Prudential Bluechip Equity Fund

ICICI Prudential Bluechip Equity fund stands out among others since it invests in mature companies. It also ensures investors that they will receive regular dividends and capital gains, mainly due to blue-chip investment.


Objective:

Capital growth and income are the objectives; NSE uses equity and equity-related instruments to invest in Top 200 stocks.



5.DSP ELSS Tax Saver Fund

It aims for investors to minimize tax liabilities and outperformance of inflation over time. Suitable for investors who have goals that are greater than ten years and at least five years.


Objective :

This investment is directed towards realizing capital appreciation gains over a long period. It is a well-diversified portfolio that involves many firms whose securities are equity and equity-related. It also gives investors advantages from the deduction of their total income per the provisions of the Income Tax Act 1961.



6.Aditya Birla Sun Life Money Manager Fund 

It is a safe fund for capital and beats inflation with high-quality debt instruments. Therefore, it implies that you have at least five years or more.


Objective :

It is aimed at generating consistent income from investing in shares or share-like securities.


7.Tata Equity P/E Fund

Indeed, the Tata Equity P/E Fund has significantly exceeded the markets year after year. The combination of large-cap and small-cap stocks in the portfolio can explain this impressive performance. This fund differs from other similar funds in that when cashed out after 18 months, no exit load is charged.


Objective :

Its goal is to provide investors with a stable and satisfying income with an option for capital appreciation.


8.ICICI Prudential Equity & Debt Fund 

This is among the most stable hybrid funds, whose focus is primarily in the financial sector (equity 22.4%, debt 79.1%); and energy (25.4%). Mr. S Naren and Manish Banthia are renowned experts in fund management, and they manage the fund.


Objective :

It seeks to create multi-year growth through Equity and equity-related instruments that are financed on a debt instrument basis.


9.PGIM India Midcap Opportunities Fund

It is one of the top mid-cap mutual funds in India. They are able to make an investment into a portfolio of mid-cap stocks and pursue 10 to 15-year investment horizon.


Objective :

The intention is to attain long-term capital growth via investing majorly in Equity & equity-related instruments of the mid-cap firms.


10.Mirae Asset India Equity Fund

This fund is among the top performers in the multi-cap category, beating its benchmark. Although it is a multi-cap fund, it has a similar risk profile to that of the broad market. This fund has Mr. Harshad Borawake and Neelesh Surana, who have wide experience in the fund management business.


Objective :

The objective of the fund is to offer long-term capital appreciation to its investors. The fund managers achieve this by taking advantage of different investment avenues in equity and equity-related instruments.




Conclusion


Factors that should be taken into account while searching for the best mutual funds include holdings, size, purpose, and investors’ conduct. Such funds usually have a solid standing when they have many shares at reputable companies.

Also, bigger funds usually have more means and investment opportunities. Investors should ensure a clear objective, in line with the fund’s goals, and follow a disciplined approach for better performance. Good interest rates result in the attainment of successful financial objectives that are informed by investment decisions.







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Sushmita Pal

Agent at Xeloxo

3 months ago

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