ARA Experts Answer Your Most Asked Questions
Can I withdraw my money anytime from a mutual fund?
Yes, you can withdraw your money from mutual funds, but it depends on the type of fund. Open-ended mutual funds allow withdrawals at any time, while close-ended funds have a fixed maturity period. Most open-ended mutual funds allow withdrawals (also known as redemptions) at any time. For equity mutual funds, it generally takes 1-3 business days to process the withdrawal, while debt funds may take up to 1-2 business days. However, some funds may have exit loads (charges on early withdrawal) and there are tax implications also. It’s important to check the fund’s terms before redeeming.
Is Mutual Fund safer than stocks?
Mutual funds are considered safer than individual stocks, as they provide diversification by pooling money from several investors and investing in a range of securities. They invest in anywhere between 20 to 90 stocks or more. This diversification helps reduce the risk associated with investing in single stocks. However, the safety of a mutual fund depends on the type of fund you choose. For example, equity funds tend to have higher risk and higher returns, while debt funds are relatively safer but offer lower returns and hybrid funds are moderate risk and offer moderate returns. Always assess the time horizon of your goals and the risk tolerance before choosing a mutual fund.
Can mutual fund investments help in saving income tax?
Equity Linked Savings Scheme (ELSS) funds qualify for tax deductions up to ₹1.5 lakh under Section 80C of Income Tax Act. ELSS are equity-oriented mutual funds with a 3-year lock-in period. This benefit is applicable if you choose the old tax regime only.
Is Investing in Mutual Funds the Same as Investing in the Stock Market?
No, investing in mutual funds is different from directly investing in the stock market. When you invest in stocks, you buy shares of specific companies and manage your portfolio yourself which requires time and expertise. In contrast, mutual funds pool money from investors and are managed by professional fund managers who invest in stocks, bonds, or other assets based on the fund’s objective. Mutual funds offer diversification and professional management, reducing the risk compared to picking individual stocks.
Can I take loan against mutual fund?
Yes, you can take a loan against mutual fund units. Many banks and NBFCs offer loans against mutual fund holdings, typically up to 50-80% of the fund’s market value. This is a secured loan where your mutual fund units are pledged as collateral. The interest rate varies based on the lender and the type of mutual fund (equity or debt). This option allows you to access funds without liquidating your investments. It’s important to carefully assess the repayment terms, and risks before considering this option.
What is the difference between a lump sum investment and an SIP (Systematic Investment Plan)?
A lump sum investment involves investing in a mutual fund at one time. This approach can be suitable if you either have a significant amount of money to invest or do not earn a consistent monthly income. However, you carry the risk of timing the market while investing lump sum money.
An SIP (Systematic Investment Plan), on the other hand, allows you to invest a fixed amount of money regularly (usually monthly) in a mutual fund. This method helps reduce the impact of market volatility and averages the cost of investment over time. SIPs are ideal for investors looking to build wealth steadily with disciplined investing.
What is the difference between Multicap and Flexicap funds
Multicap funds invest across large, mid, and small-cap stocks, but they must follow a minimum fixed allocation across these segments, as per SEBI rules. Flexicap funds also invest across all market caps—large, mid, and small—based on market conditions and opportunities. Unlike Multicap funds, flexicaps aren’t restricted by allocation limits. This gives fund managers the flexibility to shift between segments to optimize returns and manage risk.
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