Mutual funds are investment instruments which club the investments from various investors and invests them in the stock market under a given scheme. These funds are managed by a special body called Asset Management Company (AMC). The total pooled money is invested in different types of securities like debt funds, equity funds, bonds etc. the funds are managed by expert called Fund Manager as appointed by the AMC. A fund manager is responsible for managing the funds in accordance with the market corrections and creates wealth for the investors. An annual fee termed as Expense Ratio is charged from the investors against the services, they avail which is mainly managing their portfolio. The returns are generally in the form of capital appreciation or dividends. There is an option with the investors to either earn the gains as regular income or they can reinvest the returns back to the investment amount.
While investing is the new trend in market especially with the young generation, multiple investing options may lead to confusion. Having these guidelines to the right investment approach may prove to be a blessing while taking an informed decision. Mutual funds are by far the most accepted form of investment for their unmatchable advantages
We have listed some of the major aspects of mutual funds:
While investing directly in stock requires a lot of homework, time, knowledge and plenty of maths to do the trade, mutual funds are easy. Portfolio management with stocks is quite a task but when it comes to mutual funds you can even start with one.The basic funda is to identify your financial goal and once the What, When and How Much are clear, the maintenance goes from little to nil.
Not everything has to be done by oneself when you have expert advice at hand (Check out www.piggy.co.in). Stock investments can be intricate. All the work is mechanistic in nature requiring long sitting hours in front of your laptop/ipad/cell phone just to get a flavour of what’s going on, leave alone investing,With mutual funds, you have a team of fund Managers who excel in making things simpler and make investing less tiresome.
Let’s jot the key points of mutual funds:
Aren’t these more than enough to be inclined towards mutual funds and above all, it allows you a variety of options to stay invested in variety. You can always club your money and reap the benefits of multiple investments through distribution among funds.
While investing does come with some associated risks, with mutual fund investments it’s on a decline. Let’s try and understand what risk means to you;
While systematic risks are bound, we need to cater to the unsystematic risk i.e. Market Risk.
Let’s see this as:
Case 1: Market is increasing, company performance is low - The stock falls down.
Case 2: Market is decreasing, company is performing well The stock falls down!
Hence it becomes very important to diversify the investment and distribute/reduce the risk.
Risk types:
Since the transactions are involved in large scale, per unit cost of transaction goes down to inconsequential hence leading to economies of scale as compared to direct stock investment.
As fancy the heading is, so sumptuous are the available options. Mutual funds are the only financial instrument offering a variety in terms of investment mode. You can opt for a Lumpsum or quarterly or monthly or weekly investment plan as your budget allows. Another way of looking at this is in what manner you want the money back- Long invested lumpsum amount: Growth Plan Regular income: Dividend Plan Also, you can adjust the intervals in which you want the regularised income
While investing in stocks requires a great of data, information and knowledge, gathering information is a work already done in case of mutual funds. The funds come with all the necessary and desired information the investor needs to access only the performance of the fund he/she is interested in.
This aspect of mutual funds generally goes unaccounted for. Liquidity means how quickly you can get your hands on your cash. In simpler terms, liquidity is to get your money whenever you need it. It might be your emergency savings account or the cash lying with you that you can access in case of any unforeseen happening or any financial setback. Mutual funds offer easy conversion to cash as and when required hence keeping things simpler and urgent.
Mutual funds are relatively more tax-efficient than other types of investments. You can invest in any mutual fund scheme with your bank account. Invest in tax saving mutual fund schemes (they are called Equity Linked Saving Schemes or ELSSs) and claim tax deductions of up to Rs 1.5 lakh under Section 80C.
Mutual funds are the future of emerging markets. Stay invested and grow your wealth!
