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What are Mutual Funds?

The Mutual Funds usually Collect money from investors and invest their funds in equities, bonds, debentures, call money etc., depending on the objectives and terms of scheme floated by a particular Mutual Fund scheme. Nowadays there are Mutual Funds schemes which even invest in gold or other asset classes

Taxation of Mutual Funds
  • 100% Income Tax exemption on all Mutual Fund dividends
  • Equity/Balance Funds – Short-term (less than 1 year) capital gains is taxed at 15%. Long-term (more than 1 year) capital gains is not taxable upto Rs 1 lac gain.
  • Debt Funds – Short-term (less than 3 years) capital gains is taxed as per the slab rates applicable to you. Long-term (more than 3 years) capital gains tax to be lower of – 10% on the capital gains without factoring indexation benefit and 20% on the capital gains after factoring indexation benefit.
What are various types of mutual funds ?

Mutual Funds can be classified into various categories under the following heads:-

  • Equity-oriented funds / schemes (includes Tax Saving Schemes (Have a minimum lock-in of 3 years from date of investment) – Initially 3-5 years return may even go negative but normally after 5 years there is sizeable surplus and its for long term prospective. Better to invest for long term by SIP mode. Equity can be further bifurcated various sector wise like

Large Cap Index Fund (Low Risk , Medium Return)
Midcap Index Fund (Moderate risk, Moderate Return)
Small Cap Index Fund (High Risk and High Returns)
Sector Funds (invest in particular sector)

  • Debt funds – Normally fixed return above Fixed deposit and even good for short term
  • Balance funds (Having a mix of Equity and Debt) – Moderate risk and return normally higher the debts mutual fund , its better for lump sum investment
  • Liquid Funds – Money can be invested even for Single Day, return is higher than saving accounts interest

These all scheme can be Dividend Payout (Regular dividend payout) and Dividend Reinvested (Dividend reinvested at date of distribution) and Growth (No Dividend )

Ways of investing in Mutual Funds:
  • Lumpsum – Investor can invest his/her entire sum in mutual funds (equity, debt or balanced funds) at one go or small portions at his/her own wish


  • Systematic Investment Planning (SIP) – Investor can invest his/her money in a systematic mode (usually monthly just like EMI) being deducted from his savings bank account at regular intervals. This option helps in gaining rupee cost averaging by purchasing in stock market movements


  • Systematic Withdrawal Plan (SWP) – In this method, the lump sum amount is transferred to a Balanced Fund normally, which are very moderate -risk money market funds and small amounts are transferred back as monthly income at regular intervals.

Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund, or designing a portfolio that suits your needs.

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