When considering investment opportunities, the first challenge that almost every investor faces is a plethora of options. From stocks, bonds, shares, money market securities, to the right combination of two or more of these, however, every option presents its own set of challenges and benefits.
So why should investors consider mutual funds over others to achieve their investment goals?
Mutual funds allow investors to pool in their money for a diversified selection of securities, managed by a professional fund manager. It offers an array of innovative products like fund of funds, exchange-traded funds, Fixed Maturity Plans, Sectoral Funds and many more.
Whether the objective is financial gains or convenience, mutual funds offer many benefits to its investors.
Why Mutual Funds:
Mutual Funds help investors generate better inflation-adjusted returns, without spending a lot of time and energy on it. While most people consider letting their savings ‘grow’ in a bank, they don’t consider that inflation may be nibbling away its value.
Suppose you have Rs. 100 as savings in your bank today. These can buy about 10 bottles of water. Your bank offers 5% interest per annum, so by next year you will have Rs. 105 in your bank.
However, inflation that year rose by 10%. Therefore, one bottle of water costs Rs. 11. By the end of the year, with Rs. 105, you will not be able to afford 10 bottles of water. Mutual Funds provide an ideal investment option to place your savings for a long-term inflation adjusted growth, so that the purchasing power of your hard earned money does not plummet over the years.
Backed by a dedicated research team, investors are provided with the services of an experienced fund manager who handles the financial decisions based on the performance and prospects available in the market to achieve the objectives of the mutual fund scheme.
Mutual funds are an ideal investment option when you are looking at convenience and timesaving Opportunity, with low investment amount alternatives, the ability to buy or sell them
on any business day and a multitude of choices based on an individual’s goal and investment need, investors are free to Pursue their course of life while their investments earn for them.
Mutual funds, on the other hand, are relatively less expensive. The benefit of scale in brokerage and a fee translates to lower costs for investors. One can start with as low as Rs. 500 and get the advantage of long term equity investment.
Going by the adage, ‘Do not put all your eggs in one basket’, mutual funds help mitigate risks to a large extent by distributing your investment across a diverse range of assets. Mutual funds offer a great investment opportunity to investors who have a limited investment capital. Investors have the advantage of getting their money back promptly, in case of open-ended schemes Based on the Net Asset Value (NAV) at that time. In case your investment is close-ended, it can be Traded in the stock exchange, as offered by some schemes.
Higher Return Potential
Based on medium or long-term investment, mutual funds have the potential to
generate a higher return, As you can invest on a diverse range of sectors and industries.
Fund managers provide regular information about the current value of the investment, along with their Strategy and outlook, to give a clear picture of how your investments are doing. Moreover, since every mutual fund is regulated by SEBI, you can be assured that your investments are managed in a disciplined and regulated manner and are in safe hands. Every form of investment involves risk. However, skilful management, selection of fundamentally sound securities and diversification can help reduce the risk, while increasing the chances of higher Returns over time.
In a debt/income scheme, a major part of the investable fund are channelized towards debentures, Government Securities and other Debt Instruments. Although capital appreciation is low
(compared to the equity mutual funds), this is a relatively low risk-low return investment
Avenue which is ideal for investors seeing a steady income.
Money Market/ Liquid
This is ideal for investors looking to utilize their surplus funds in short term instruments while awaiting Better options. These schemes invest in short-term debt instruments and seek to provide reasonable returns for the investors.
Equities are a popular mutual fund category amongst retail investors. Although it could be a high-risk investment in the short term, investors can expect capital appreciation in the long run. If you are at your prime earning stage and looking for long-term benefits, growth schemes could be an ideal investment.
Advantages investing in Capital Market based Funds
As an investor, you would like to get maximum returns on your investments, but you may not have the time to continuously study the stock market to keep track of them. You need a lot of time and knowledge to decide what to buy or when to sell. A lot of people take a chance and speculate, some get lucky, most don’t, this is where mutual funds come in.
Professional Management: Qualified professionals manage your money, but they are not alone. They have a research team that continuously analyses the performance and prospects of companies. They also select suitable investments to achieve the objectives of the scheme. It is a continuous process that takes time and expertise which will add value to your investment. Fund managers are in a better position to manage your investments and get higher returns.
Diversification: The cliché, “don’t put all your eggs in one basket” really applies to the concept of intelligent investing. Diversification lowers your risk of loss by spreading your money across various industries and geographic regions. It is a rare occasion when all stocks decline at the same time and in the same proportion. Sector funds spread your investment across only one industry so they are less diversified and therefore generally more volatile.
More choice: Mutual funds offer a variety of schemes that will suit your needs over a lifetime. When you enter a new stage in your life, all you need to do is sit down with your financial advisor who will help you to rearrange your portfolio to suit your altered lifestyle.
Affordability: As a small investor, you may find that it is not possible to buy shares of larger corporations. Mutual funds generally buy and sell securities in large volumes which allow investors to benefit from lower trading costs. The smallest investor can get started on mutual funds because of the minimal investment requirements. You can invest with a minimum of Rs.500 in a Systematic Investment Plan on a regular basis.
Tax benefits : Investments held by investors for a period of 12 months or more qualify for capital gains and will be taxed accordingly. These investments also get the benefit of indexation.
Liquidity: With open-end funds, you can redeem all or part of your investment any time you wish and receive the current value of the shares. Funds are more liquid than most investments in shares, deposits and bonds. Moreover, the process is standardized, making it quick and efficient so that you can get your cash in hand as soon as possible.
Rupee-cost averaging :With rupee-cost averaging, you invest a specific rupee amount at regular intervals regardless of the investment’s unit price. As a result, your money buys more units when the price is low and fewer units when the price is high, which can mean a lower average cost per unit over time. Rupee-cost averaging allows you to discipline yourself by investing every month or quarter rather than making sporadic investments.
The performance of a mutual fund is reviewed by various publications and rating agencies, making it easy for investors to compare fund to another. As a unit holder, you are provided with regular updates, for example daily NAVs, as well as information on the fund’s holdings and the fund manager’s strategy.
All mutual funds are required to register with SEBI (Securities Exchange Board of India). They are obliged to follow strict regulations designed to protect investors. All operations are also regularly monitored by the SEBI.
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