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Acquiring, amassing and expending wealth has always been a general societal fixation. And investing in mutual funds is a tried-and-tested means to do that.

1.Mutual Funds – Intro

Mutual funds, a collection of bonds or shares pooled by investors from different backgrounds, is the easiest means to earn something on the extra to grow your wealth. This is done by accessing different swaths of stock markets and making right investment decisions, usually by a fund manager. Every risk, returns, reward or loss related to or arising from this investment is collectively shared by the concerned investors, and hence the term ‘Mutual Fund’. Financial experts call mutual funds the founding stone of any investment portfolio.

As a popular investment vehicle shared with thousands of investors (including you) from diverse backgrounds and different financial goals, mutual fund is managed collectively to earn the highest possible returns. The person driving this investment vehicle is a professional fund manager, who typically comes with years of experience and expertise in fund management. With strong backing by a team of research and analysis experts, the fund manager makes decisions like when and how much to invest where. All mutual funds are registered with SEBI (Securities Exchange Board of India) and therefore, quite safe.

2. A Brief History of Mutual Funds in India

In India, the mutual fund industry is over 55 years old. While mutual funds have not historically been preferred investment vehicles, more and more investors are now moving towards them. Government bodies like AMFI and SEBI have done a good job of raising awareness about mutual funds. And the industry’s assets have grown from Rs. 600 crores in the initial stage (1964) to an all-time high of Rs. 18.3 lakh crore in FY17.

The main aim of the government was to provide a platform for small and mid-cap investors to make market investors. Ever since, the industry has had a fascinating journey of growth and popularity, summed up in 6 distinct stages.

Stage I – How UTI Evolved (1964-87):

The Government of India and RBI formed the Unit Trust of India (UTI) in 1963 – this was the beginning of mutual fund sector in the country. As the only entity providing mutual funds at the time, UTI enjoyed a monopoly and incepted its first scheme, the Unit Scheme. The 70-s and 80-s saw a huge growth of UTI with diverse schemes – Unit Linked Insurance Plan (ULIP), India Fund etc. – attracting investors from all backdrops.

Stage II – Public-sector Funds Enters (1987-93):

The State Bank of India launched SBI Mutual Fund in 1987, the first of its kind outside UTI. Then followed a slew of other public-sector funds like Canbank Mutual Fund, Bank of India Mutual Fund, GIC Fund, Indian Bank Mutual Fund, LIC Mutual Fund and PNB Mutual Fund.

Stage III – Privatization Happened (1993-96):

When government allowed privatization of mutual funds in 1993, Kothari Pioneer was the first company to acquire permission for the same. This was followed by several others including foreign fund management companies – leading to higher competition, wider choice for investors and integration of user-friendly technologies in the field. The year 1995 also saw the launch of Association of Mutual Funds in India (AMFI).

Stage IV – SEBI Stepped In (1996-99):

SEBI was set up in 1996 to regularize mutual fund operations in the country, setting a uniform precedent to all fund houses. Exemption of mutual fund dividends from taxation by the 1999 Union Budget was another milestone. It was also when SEBI and AMFI incepted Investor Awareness Programme aimed to educate the masses about MF investments.

Stage V – Uniform Across Industry (1999-2004):

This phase was marked with the repeal of the UTI Act and UTI Mutual Fund now operates under SEBI just as any other mutual fund. This uniformity in terms of structure, guidelines and functions made it easier for fund houses as well as distributors.

Stage VI – Continues To Evolve (2004-present):

The mutual fund sector went through a slew of acquisitions and consolidations (example, Allianz Mutual Fund acquired by Birla Sun Life). New players (both domestic and international) enter the arena as we speak, and mutual fund has become one of the best financial instruments to build wealth.

3. Features & Benefits of Mutual Fund Investment 

Expert Money Management

Individual investors may not have the time or professional experience to decide how to invest their money. A mutual fund company employs professional managers to manage the money pooled in their funds, who decide in which sectors/stocks or debt papers to invest the money or to hold on to the cash. They use their profound knowledge of the market and expertise in data analysis to take a call that reduces risks and maximizes returns on investors’ behalf.

Lock-in Period

Aside from the few close-ended schemes with lock-in periods starting from 1 month. For instance, ELSS is a tax-saving mutual fund investment that comes with the shortest lock-in period of 3 years. The longer the holding period (beyond the mandatory lock-in), the better returns you earn and vice versa. Open-ended mutual funds generally do not have lock-in periods and you can close/withdraw them anytime.

Paper-less documentation available

Investing in a mutual fund has never been easier. There is no cumbersome documentation process as you can select a plan and make the payment online from the comfort of your home or office. Our investment platform presents you with handpicked plans that suit your affordability and financial goal the best, be it short-term or long-term. The process has been made quite user-friendly and you can complete the investment in less than 5 minutes.

Low cost

Mutual funds make for a reasonably priced investment option for people who cannot afford to put in large initial investment. Fund houses charge a nominal fee, called expense ratio, for their services. The annual expense ratio of a mutual fund usually ranges from 0.5% to 1.5% and cannot exceed 2.5% – deducted from the money invested by you. Direct plans of mutual funds have a lower expense ratio as compared to regular plans. And all transactional expenses are divided proportionately between investors.

SIP options

Even though investing a lump-sum in one go is recommended for long-term financial planning, investments in smaller and manageable instalments also have benefits. Systematic Investment Plans foster financial discipline in investors as well as secure financial future by averaging the rupee cost. It’s an ideal alternative to mid-income and low-income people, who may not be able to put in a huge amount at a given time

Flexibility to switch funds

A serious investor (or fund manager) knows when to switch from the current fund to another to keep up with or stay ahead of the market. There are many mutual fund schemes that allow this. Your portfolio needs frequent review to be able to change to another fund when required, ensuring better returns while not getting burned by market volatility.

Investments based on goals & focus-sector

Every investor has a reason for which he/she is saving, or a goal – a short-term goal like the next international holiday or a long-term goal like financial security post retirement. Also, different schemes focus on different assets. This allows investors to drive money to various asset classes, thereby diversifying their portfolio to even out risks.

An option to diversify investment

Mutual funds invest in multiple assets to spread the risks – so that when one under-performs, the other’s gains can even out the loss. Diversification doesn’t mean you need to invest a huge amount in every single plan; it works even if you put in an amount as meagre as Rs. 500. However, do take care to not invest in too many (more than 5) as it may get difficult to monitor.

Flexibility in terms of tenure

ELSS is the only mutual fund that comes with a minimum lock-in period of 3 years (as it is a tax-saving scheme). Other mutual funds don’t have any such constraints with ample flexibility in terms of initial investment, fund-switching and tenure.


Mutual funds are completely liquid investments. You can redeem your invested money any time you want. There is no need to justify your decision or hunt for a buyer. Simple place a request with your fund house and get your money credited in your account in 2-3 working days.

Diverse fund types available

There are different types of mutual funds based on investment goals, individual risk appetite, sectors and fund size among others – equity funds, debt funds & balanced funds are some examples.

Painless trading & transaction

Buying, selling and redeeming a fund at current market price per unit or based on NAV is quite simple. All you need to do is put in a request with the fund company and the fund manager will take care of the rest. With its easy liquidity, mutual funds are often considered as emergency funds.


Mutual fund (ELSS) is a better tax-saving instrument (as exempted under Section 80-C) than traditional options like FD, PF etc. as the returns have been consistently high in the recent years. While returns of other tax-saving products are taxed, ELSS returns are not taxed.

Build wealth with better returns

Mutual funds have become popular over the years as they deliver much higher returns for both short-term and long-term investments. ELSS, for instance, can literally double your money in 5 years.

Safe & secure in every sense

All mutual fund companies and their products are strictly regulated by the government body, SEBI (Securities Exchange Board of India). It is as safe as putting money in a bank and nobody is going to run off with your money as generally perceived.

Easy to monitor & make informed decisions

Investors may not have the time or knowledge to analyze the performance of mutual funds in an objective manner. This is why fund houses provide investors with regular statements, making it easy for investors to track their earnings from mutual funds.


Every mutual fund related information can be found online (brochures, videos, articles) for easy scrutiny and circumvention of third-party agents, helping the investors steer clear of fraudulent representation.

4. How to Invest in Mutual Funds

Thanks to the digital wave, mutual funds are easily accessed nowadays. You may apply for using any of the below options.

Direct Purchase

Investors can directly contact fund houses to apply for a scheme and save on brokerage. Get the form directly from the nearest branch of the AMC or downloaded online. Do take care to go through the fine print and clear all your queries before deciding.


These are sales professionals who reach out to potential customers and inform them on the different fund options they have based on their income, investment goal and risk profile. Applications, redemption, transactions and cancellation among others can be done through them. Their commissions are often included in the cost of the fund units.

Online (Distributors/Fund Houses)

Buying/selling a mutual fund unit online is almost the norm today. This not only saves on time and effort, but also makes it easy to compare funds and make informed decisions.

5. Mutual Fund Structure in India

Contrary to general perception, the mutual fund industry is strictly monitored by SEBI and AMFI to ensure transparency and protect the investor’s assets. SEBI mandates any fund to be set up as a trust (as per the Indian Trust Act, 1882) and managed externally by a fund house.

It follows a 4-tier structure as listed below.


The sponsor could be an individual acting alone or with another corporate body that starts a mutual fund. A minimum of 40% of the Asset Management Company should come from the sponsor.

Asset Management Company (AMC)

AMC is the fund manager who decide where to invest the money amassed from investors. They put money in securities (equity, debt etc.) in accordance with market trends and review the fund performances.

Board of Trustees

Board of Trustees are people with no association with the sponsor and they also hold the property of the mutual fund in the trust. This ensures objectivity and transparency in the interest of unit-holders.


Law mandates every mutual fund to be placed with a SEBI-registered custodian (banks, in most cases).


In a nutshell, this rise in assets under management shows that investors are preferring mutual funds over traditional investment options and direct stock investing. If you haven’t started investing in mutual funds, you should do so right away. You can invest in mutual funds easily and quickly through ClearTax.


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  1. Morningstar Inc. is a Chicago-based investment research and investment management firm. The company rates mutual funds and ETFs on a 1 to 5-star ranking.