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Mutual Funds For Defence Personnel

Mutual funds for defense personnel are an attractive investment option that allows military personnel to grow their wealth through a diversified portfolio of stocks, bonds, and other securities, managed by professional fund managers. These funds provide a convenient, low-maintenance investment solution for defense employees who may not have the time or expertise to manage individual investments. Mutual funds offer several benefits, such as diversification, professional management, and flexible options like Systematic Investment Plans (SIPs), which encourage regular, disciplined investing. Additionally, some mutual funds provide tax benefits, such as those under the Equity-Linked Savings Scheme (ELSS), which can help reduce taxable income. Mutual funds are also portable, meaning defense personnel can continue to manage their investments easily despite frequent relocations. They can serve as both emergency funds and long-term retirement planning tools, offering a way to secure financial stability after service.

However, it’s important for defense personnel to carefully assess their risk tolerance and choose mutual funds that align with their financial goals, as some funds carry market risks, and certain schemes may have lock-in periods.

What are Mutual Funds for Defence Personnel

A Mutual fund is a pool of money managed by a professional Fund Managers. It is a trust that collects money from a number of investors who share a common investment objective & invests the same in equities, bonds, money market instruments etc. The income or gains generated from this collective investment is distributed proportionately amongst the investors after deducting applicable expenses & levies by calculating a schemes “ Net Asset Value” or NAV.Mutual Funds are ideal for Soldiers who either lack large sums for investment or for those who neither have sufficient knowledge nor the time to research the market but still wants to grow their money more than traditional investment option like Fixed Deposits, Provident Funds,Gold etc. The Mutual Funds are regulated by Securities & Exchange Board of India (SEBI).

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Types of Mutual Funds

The Mutual Funds are categorized based on their Structure, Investment Objectives and Investment Style.

Based on the Structure

Open-ended Funds – These are Mutual Funds that allow you to invest & redeem/sale investment at any time i.e they are liquid in nature & don’t come with a specific investment period.

Closed-ended Funds – These are Mutual Funds which comes with a fixed maturity date. You can only invest at the time of the new fund offer and redemption i.e sale can only be done on maturity. You can’t purchase the units of a closed ended fund in between or whenever you wish.Hence, the units of a closed ended fund are compulsorily listed on a stock exchange & traded like other stocks so that if investors seek to exit the scheme before maturity may sell their units on the exchange.

Based on Investment Objective

Equity Mutual Funds – Invests at least 65 % of their money in stocks/shares of companies listed on the stock exchange. They are suitable for long term ( i.e more than 5 yrs) as shares can be volatile in short term.Their aim is to provide both income & capital appreciation over longer period.

Debt Mutual Funds – Primarily invests in fixed income investments like Government securities, corporate bonds & other debt instruments which may be of short or long term.They aim to provide regular income but returns are far less as compared to equity mutual funds with less or no capital appreciation.

Hybrid Mutual Funds – These are most balanced mutual funds as they invest in a combination of equity & debt securities.Hence aims to provide both income and capital appreciation at comparatively less volatility and risk.

Based on Investment Style

Active Funds – An actively managed fund is a mutual fund scheme in which the fund manager “actively” manages the portfolio & continuously monitors the funds performance deciding on which stocks to buy, sell or hold & when using his professional judgement backed by analytical research. In an active fund, the fund manager’s aim is to generate maximum returns & out perform the scheme’s benchmark.

Passive Funds – A passively managed fund contrary to active Funds simply follows a market index i.e in a passive funds, the fund manager remains inactive or passive as much as, he does not use his judgement or discretion to decide as to which share to buy, sell or hold but simply replicates the scheme’s benchmark index in exactly the same proportion.

Modes/Ways of Mutual Fund Investment

Lumpsum
SIP

A lump sum investment in a mutual fund refers to investing a large amount of money, such as Rs 1 lakh, in one single transaction rather than spreading it out over time. This means that if you have a specific sum of money available to invest, you choose to invest the entire amount at once into a mutual fund of your choice.

A Systematic Investment Plan (SIP) is a method of investing small, fixed amounts regularly in a mutual fund, rather than making a lump sum investment all at once. For example, if you don't have Rs 1 lakh to invest upfront but can commit to investing Rs 10,000 per month for 10 months, SIP allows you to do this. This way of investing helps you spread out your investment over time, making it easier to manage your finances and align the investment with your cash flow.

Features & Benefits of Mutual Funds

Diversification of Portfolio – Investing your hard earned money in different asset classes is called diversification of Portfolio. The saying “do not put all your eggs in one basket” perfectly fits in Mutual Funds as spreading investment across multiple securities & asset categories lowers risk. For example, compared to direct equity investing i.e Investment in direct company shares, equity mutual funds invests in a basket of stocks across sectors thereby reducing the risk of capital investment.

Liquidity – You can redeem/sell your mutual fund investment on any working/business day at the NAV of the day of your redemption. So, depending on the type of mutual fund you have invested in you will receive your invested funds in your bank account in 1-3 days. However, close end funds allow redemption only at the time of maturity & ELSS mutual funds have a lock in period of 3 yrs.

Cost-effective/ Low Cost Investment – Unlike real estate investment where you have to pay high charges like stamp duty, registration charges, taxes etc & gold where you have to pay high making & breaking charges, taxes etc, Mutual Fund Investments are most cost effective & allow to invests with very less cost in the form of expense ratio of 1-2 % of total corpus. For example, for investment of Rs 1000 in mutual funds, you have to pay only Rs 10-20 as fees, making it lowest among different asset classes.

Professional Management – Mutual Funds are managed by highly qualified, full time professional fund managers who have the expertise, experience & resources to actively analyze, research and manage investments. A fund manager continuously monitors investments & rebalances the portfolio accordingly to meet the scheme’s objectives.

Good Returns on Investment – The Defence Personnel who are looking to beat inflation & earn better returns than traditional investment options like Fixed Deposits, Provident Fund etc then mutual funds historically offer better returns in the long run.Soldiers can easily invest in mutual funds through FaujiFinServ.com without having Demat Account.

Easy Process – Any one can invest in mutual funds easily in a hassle free manner online or offline with Bank account & KYC details only even without Demat account.

Well Regulated – The mutual fund industry like capital markets is regulated by Securities & Exchange Board of India (SEBI).They need to follow all compliances, stringent rules & regulations ensuring investor protection, risk mitigation & liquidity.

Tax Saving – Some mutual fund schemes like Equity linked Savings Scheme ( ELSS) qualifies for tax benefits under section 80C of the Income Tax Act, 1961 upto Rs 1.5 lacs investment in a financial year under old tax regime. The ELSS mutual fund schemes have lockin period of 3 years.

Documents required to invest in Mutual Funds

Unlike other investment options, to invest in mutual funds only Bank account details i.e cancelled cheque & KYC ( Know Your Customer) documents which includes proof of address & proof of identity are required.

For KYC, list of officially valid documents (OVD) admissible are

Proof of Identity

Pan Card ( Mandatory)
Voter ID Card
Driving license
Passport
Aadhar Card
Any other valid identity card issued
by the centre or State Government.

Proof of Address

Voter ID Card
Driving license
Passport
Ration Card
Aadhar Card
Bank Account Statement
Utility Bills like Electricity,Gas,Water etc

FREQUENTLY ASKED QUESTIONS

How Do Mutual Funds Work

The Mutual Fund scheme pools money from different investors having same financial goal & allocate units of mutual fund scheme in proportionate to their investments which is calculated on the basis of the NAV ( Net Asset Value). NAV per unit is the price at which investors can buy or redeem/sell their mutual fund investments. For example, if you invests Rs 1000 in a mutual fund scheme with an NAV of Rs 10 you will get (1000/10) i.e 100 units of mutual fund. The NAV of the mutual fund scheme changes every day on the basis of the performance of the assets in which mutual funds are invested.

How to choose good Mutual Fund Scheme

Mutual funds should be selected keeping in mind four major factors among others viz the amount of risk i.e risk appetite one can take, returns expected, time frame of investment and the financial goal or objective of investment. Risk & returns are directly proportional when investing in top performing mutual funds. Higher the risk appetite, higher can be the potential returns & vice versa.

Do Mutual Funds better than direct investing in shares i.e secondary markets

Shares are generally riskier than mutual funds because an individual can invest in 2 or 3 shares at a time whereas mutual funds can invest in 50 different shares with the same amount of investment which diversifies the portfolio & hence mitigates the risk.

Which is better lumpsum or SIP

Risk Tolerance – For soldiers who don’t wants to take more risk, SIP is better than Lumpsum option as it helps you average out market fluctuations.

Time Horizon – For long term, SIP is a good option as it allows you to benefit from cost averaging. If you are investing for short term, the lumpsum investment may be more suitable.

Can I break my mutual fund investments anytime

Mutual funds are liquid assets & as long as you invest in open ended schemes, be they equity or debt scheme, it’s easy to withdraw your investment at any time with no restrictions at all.

What is Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus it’s liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the valuation date.

How will I receive the redemption amount.

You will receive it by direct credit into your savings account registered when you purchased the mutual fund scheme.

What is Repurchase/Redemption price

When an investor sells a mutual fund unit back to mutual fund house, it is called Repurchase or Redemption & is based on the Net Asset Value of that Fund.

What is New Fund Offer

A New Fund Offer ( NFO) marks the launch of a new mutual fund scheme, inviting investors to subscribe to its units at an initial price. During the NFO period, investors can purchase units directly from the fund house.

What is minimum lumpsum & SIP amount required to invest in Mutual Funds

Mutual Funds in India are required to invest a minimum investment value of Rs 100 for lumpsum & Rs 500 for SIP as per SEBI regulations

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