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What are Mutual Funds? 

Mutual Funds are investment pools where money from various investors is collected and then invested in a diversified portfolio of assets like stocks and bonds. Investors in Mutual Funds own shares of the fund, which, in turn, owns shares in other companies or government bonds.

The investors cannot directly own the stocks held by the fund. They share in the profits or losses of the entire fund equally. This shared ownership model is why they are called 'Mutual Funds,' offering investors a way to access a diversified portfolio without needing to directly manage individual mutual fund investments.

Advantages of Mutual Funds 

These are some of the advantages of investing in Mutual Funds

1. Diversification

Mutual funds offer diversification by investing in a variety of assets, spreading risk across different securities. It helps investor’s portfolio from market volatility.

2. Professional Management

Experienced fund managers with a rich experience in the market make investment decisions, leveraging their expertise for potentially higher returns.

3. Liquidity 

Mutual funds offer high liquidity, which means investors can buy or sell fund units at any time, providing flexibility to their investments.

4. Tax Benefits

ELSS mutual funds offer tax advantages, allowing investors to save up to Rs 1.5 lakh under Section 80C with a three-year lock-in period.

5. Affordability 

Mutual funds are an affordable means of investment, which makes them accessible to investors with varying capital levels, making them affordable for all.

6. Safe Investment 

Mutual funds investments are regulated by SEBI, and provide a safe investment option for investors seeking stability and growth

What are the types of Mutual Fund investments? 

The types of Mutual Fund (MF) investments can be broken down depending on different factors - here are the different types:

Types based on Asset Class 

  1. Equity Funds: Invest in company shares, offering high growth potential.
  2. Debt Funds: Invest in bonds, providing steady income.
  3. Money Market Funds: Invest in low-risk, short-term securities.
  4. Hybrid Funds: Blend stocks and bonds for growth and stability.

 

Types based on Investment Goals

  1. Growth Funds: Aim for capital appreciation with high-growth stocks.
  2. Income Funds: Generate regular income through bonds and dividends.
  3. Liquid Funds: Prioritise liquidity and safety with short-term debt.
  4. Tax Saving Funds: Provide tax benefits under Section 80C with equity investments.

 

Types based on Structure

  1. Open-ended Funds: Offer continuous buying and selling flexibility.
  2. Closed-ended Funds: Have fixed maturity periods and limited units.
  3. Interval Funds: Combine features of open and closed-ended funds.

 

Types based on Risk

  1. Very Low-Risk Funds: Invest in low-risk securities for capital preservation.
  2. Low-Risk Funds: Aim for income generation with slightly higher risk.
  3. Medium Risk Funds: Balance growth and risk with equity and debt investments.
  4. High-Risk Funds: Focus on capital appreciation with increased volatility.
  5. Specialised Mutual Funds: Investment options tailored to meet specific goals.
  6. Sector Funds: Focus on specific industries or sectors for potential performance.
  7. Index Funds: Cost-effective exposure to overall markets or specific segments.
  8. Funds of Funds: Diversified portfolios through investing in other mutual funds.
  9. Emerging Market Funds: Growth opportunities in developing economies with higher risk.
  10. International/Foreign Funds: Diversification beyond domestic markets for potential returns.
  11. Global Funds: Blend domestic and foreign investments for broad diversification.
  12. Real Estate Funds: Exposure to the real estate market without direct property ownership.
  13. Commodity-focused Stock Funds: Indirect exposure to commodity markets through related companies.
  14. Market Neutral Funds: Balanced positions to generate returns with reduced market risks.
  15. Inverse/Leveraged Funds: Unique strategies providing inverse returns or amplifying performance.
  16. Asset Allocation Funds: Automatic portfolio adjustments for specific risk-return profiles.
  17. Gift Funds: Charitable giving with tax advantages and support for causes.
  18. Exchange-Traded Funds (ETFs): Liquidity and diversified exposure combining mutual fund and stock elements.

Factors to consider when Investing in Mutual Funds in India 

These are some of the factors that an investor should consider when it comes to investing in Mutual Funds (MFs) in India.

Identifying Investment Goals

Start by identifying your investment objectives. Equities offer high returns but come with higher risks, while bond funds provide stability amidst market volatility.

Considering Time Horizon 

Align your investment horizon with your goals. Long-term objectives suit growth-oriented equity funds, while mid-term goals benefit from a balanced portfolio. Short-term goals necessitate a mix of bonds for stability.

Assessing Risk Tolerance 

Assess your risk tolerance to determine whether you prefer a conservative or aggressive approach to investments. Understanding these factors empowers investors to make informed decisions tailored to their financial objectives and risk appetite.

Why Investing in Mutual Funds through ICICI Bank?

paperless process

Digital process

Make investments through online portal

variety of schemes

Variety of schemes

Over 2,500+ schemes to choose from

personalised options

Exclusive investment option

Scheme recommendation based on your risk profile

invest in a minute

Investment calculator

Allows you to estimate the returns on your Mutual Fund investments

How to Invest in
Mutual Funds?

  • internet banking Net Banking
  • internet banking iMobile Pay
  • 01. Login to ICICI Bank Net Banking> Investments and Insurance> Buy Mutual Funds
  • 02. Select ‘Top categories’
  • 03. Choose the scheme and invest
invest in mutual fund
  • 01. Login to ICICI Bank iMobile Pay app> Invest and Insure> Mutual Funds
  • 02.Select ‘Top categories’
  • 03.Choose the scheme and invest
invest in mutual fund

Mutual Fund FAQs

Is Mutual Fund a good investment?

Mutual Funds are a good investment option for investors looking to diversify their portfolios. Instead of taking exposure to only one company or industry, a Mutual Fund investor invests in different securities and minimises your portfolio's risk.

How are returns earned in Mutual Funds?

Mutual Fund returns are calculated by computing appreciation in the value of your investments over a period as compared to the initial investment. The Net Asset Value of Mutual Fund indicates its price and is used in calculating returns for your Mutual Fund investments. Using a MF Calculator, you can easily calculate the returns on your mutual fund investment.

Are Mutual Funds taxable?

By investing in Mutual Funds, an investor can earn returns in the form of capital gains and dividend* income, which are taxable in the hands of the investor.

  • Capital gains/ losses arise when an investor sells any number of units of Mutual Funds.
  • An investor receives a dividend in proportion to the number of units held at the time of announcement of the dividend, distributed by companies when they earn a surplus.

 

Tax on Capital Gains arising from the sale of Mutual Fund units:

The capital gains depend on the period of holding (short-term or long-term) and the type of capital asset.

  • In the case of Equity Mutual Funds, an investment with a tenure of less than 1 year is a short-term investment. An investment with a tenure of more than 1 year is a long-term investment.
  • Debt and Hybrid Mutual Funds will always be treated as short-term (irrespective of the period of holding) and taxed at applicable slab rates.

 

The Union Budget 2024 has introduced significant changes in the taxation of Mutual Funds which impact how various types of Mutual Funds are taxed in both the short-term as well as long-term.

Equity Mutual Funds/ Equity Index Funds/ Equity Exchange- Traded Funds (ETFs)/ Equity Fund of Funds (FoF)/
Balanced Advantage Funds (BAFs)/ Equity Savings/ Arbitrage Funds/ Aggressive Hybrid Funds* (i.e. Equity Oriented Schemes)
Before July 23, 2024(Pre-Budget) On or after July 23, 2024 (Post-Budget)
STCG LTCG STCG LTCG

Period of Holdings (Months)

<12

>12

<12

>12

Type of Gain

Short-Term

Long-Term

Short-Term

Long-Term

Rate of Tax

15%

10% (on gains above Rs. 1 lakh)

20%

12.50% (on gains above Rs. 1.25 lakh)

 

* The Securities Transaction Tax (STT) is applicable on these funds as >=65% is invested in domestic equity shares.

BAFs are considered here as in most cases, BAF schemes maintain a gross exposure of 65% or more in equity and equity related instruments.

++ Irrespective of the period of holding, they will be treated as short-term.

** Equity Fund of Funds, International Funds and Gold Mutual Funds.

On or after July 23, 2024 (Post-Budget)

++Other than Equity Oriented Schemes i.e. Debt Oriented Fund, Hybrid  Mutual Fund (incl. Specified Mutual Fund) Before July 23, 2024 (Pre-Budget) On or after July 23, 2024 (Post-Budget)
STCG LTCG STCG LTCG

Period of Holdings (Months)

<36

>36

<24

** >24

Type of Gain

Short-Term

NA

Short-Term

NA

Rate of Tax

As per slab rate

NA

As per slab rate

** 12.50 %

 

Debt Oriented Fund (>= 65% in Securities and Exchange Board of India (SEBI) regulated debt and money market instruments)

Hybrid Mutual Funds (> 35% and < 65% in SEBI regulated debt and money market instruments)

Specified Mutual Funds mean Mutual Funds where not more than 35 per cent of the total proceeds are invested in the equity shares of domestic companies. The definition of the ‘Specified Mutual Fund’ is amended from FY 2025-26 as below:

(a) Mutual Fund which invests more than 65 per cent of its total proceeds in debt and money market instruments or

(b) A fund which invests 65 per cent or more of its total proceeds in units of a fund referred to above.

Tax on Dividend Income received from Mutual Funds:

  • Since <Apr 1, 2020>, Mutual Fund dividends have been taxable in the hands of investors. Dividend income is taxable under the head ‘Income from other Sources’ as per the individual’s income tax slab rate. 
  • In addition to such taxation, the distributor of dividend* income must deduct the Tax Deducted at Source (TDS) at a rate of 10%. However, TDS will not be deducted if the total dividend paid by such a distributor during the financial year is less than ₹ 5,000.
  • If the customer fails to provide the PAN to such a distributor, 20% TDS will be deducted.
  • For Non-Resident Indians (NRIs), TDS is required to be deducted at the rate of 20% subject to the DTAA (Double Taxation Avoidance Agreement), if any.

What is the best way to choose a Mutual Fund that suits your financial objective?

Selecting a Mutual Fund is a two-step process – selection of the Mutual Fund category and selection of a scheme in that category.

Select the Mutual Fund category on the basis of the investment objective, time horizon and risk tolerance.

After selecting the Mutual Fund category, choose a Mutual Fund scheme within that category on the basis of its relative performance vs benchmark & its category and consistency of performance. The other important aspect in the scheme selection process is the AMC track record, fund manager’s experience, scheme’s Asset Under Management (AUM) & Expense ratio.

What is SIP in Mutual Funds?

SIP stands for Systematic Investment Plan. It is a method of investing in Mutual Funds (MFs) and involves regularly investing a fixed amount at predetermined intervals, generally monthly. SIPs are popular for letting investors invest in a disciplined manner and they also offer the chance to generate long-term wealth.

Is Mutual Fund Investment Profitable? 

Mutual funds can be profitable investments, but success also depends on selecting the appropriate fund and maintaining a long-term perspective. However, profitability is influenced by factors like fund management and market conditions. It's important to understand that mutual funds are susceptible to market fluctuations, meaning their value may decline if underlying assets falter. Using a mutual fund calculator can help in monitoring the progress of the fund.

Disclaimer

  • Terms and Conditions of ICICI Bank, as available on www.icicibank.com and Terms and Conditions of the third parties apply. ICICI Bank is not responsible for third party products, goods, services and offers. Customers shall be deemed to have read, understood and consented to these Terms and Conditions. 

  • Nothing in this document is intended to constitute advice of any kind including legal, tax, security or investment advice or opinion regarding the appropriateness of any investment(s) or an offer, invitation or solicitation for any product(s) or service(s) and does not intend to create any rights or obligations.

  • The use of any information set out herein is entirely at the recipient’s own risk. ICICI Bank does not accept any responsibility for any errors whether caused by negligence or otherwise or for any loss(es) or damage(s) incurred by anyone by placing reliance on anything set out in this document, including any loss(es) or shortfall(s) resulting from the operations of the Mutual Funds. The information set out herein may be subject to updation, completion, revision, verification and amendment.

  • For a "Fund of Funds" scheme, investors may please note that they will be bearing the recurring expenses of the relevant Fund of Funds Scheme in addition to the expenses of the underlying schemes in which the Fund of Funds Scheme makes investment.

  • ICICI Bank is acting merely as a distributor/corporate agent/point of service for the third party(ies). Any investment(s) in such third party product(s)/service(s) shall constitute a contract between the investor and the third party. ICICI Bank shall not be liable or responsible for any loss(es) resulting from the third party’s product(s). The contract, with regard to the Mutual Fund is between the asset management company and the investor and not between ICICI Bank and the investor. Participation by ICICI Bank’s customers is on a purely voluntary basis and there is no direct or indirect linkage between the provision(s) of the banking services offered by the Bank to its customers and their usage of the product(s) or participation in the scheme. Please visit www.icicibank.com/Personal-Banking/investments/mutual-funds/disclosure page for more details.

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