Going the MF way...Are you?
The formation of UTI [Unit Trust of India] in the year 1963 marked the evolution of the immensely popular industry today – the Mutual Funds industry in India. Joint efforts by GOI and RBI led to the birth of an investment vehicle whose primary objective was to attract small investors.
Considering today’s scenario wherein the growth of the MF industry is being fuelled by the retail investor - the objective pretty much seems to have been met.
You want good returns – but you don’t have enough to be able to invest in stocks. You have a substantial sum to invest – but don’t want to risk losing it by investing in the stock market owing to its volatility. Yeah then investing in debt securities can be a good alternative – but what about the “near to the ground” returns?
In that case, why not take a look at a Mutual Fund? Well that’s the answer I got when I asked myself what could possibly be a good investment bet that would give me returns like stocks while keeping the risk at bay!!
Well to begin with a Mutual Fund [MF] is a pool of money, collected from several investors and invested by an AMC [Asset Management Company] to achieve common objectives of the investors.
The collected money may be invested in equity, debentures or other securities as per the objective of that particular MF scheme. The returns on the scheme, in the form of capital appreciation and any dividends and bonus are distributed to the individual investors in proportion of the number of units held by them.
Investing in mutual funds can be beneficial in many ways:-
Spreading the risk – A mutual fund invests in a variety of securities within the fund. When you invest in a single security or bond, you run the risk of losing your money if that security fails to perform; whereas by investing in a MF, since your money is not in a single basket, it does not result in a substantial loss to the investor as other holdings balance the loss.
Leave the management to the professionals – Mutual funds are managed by topflight professionals [Fund managers] who track the market on a continuous basis and are better equipped than any normal individual investor to understand the market and decide what securities to buy and/or sell.
So once you invest in a MF, you can, to an extent, leave your worries to these professionals who manage it on your behalf.
Liquidity – MF investments are completely liquid and can be redeemed at NAV related prices on any working day. It’s just a matter of making a call and the cash is in your account in a span of 2 to 3 days.
Other advantages – Mutual funds offer several other benefits, besides the ones mentioned above, such as – Investing in MF allows you to choose schemes of a particular fund house [e.g. – Reliance or HDFC] or switch between schemes of the same fund family, switching between growth and dividend options.
Investors can also choose from a variety of asset classes, industries, indices and open/closed ended schemes. Mutual funds are relatively less expensive, offer transparency and tax benefits [ELSS schemes].
So, looking at the host of benefits offered by mutual funds, it’s no wonder why MF’s are becoming increasingly popular as investment vehicles.
Whether you want to invest a lump sum or planning to invest a small amount every month by way of SIP’s, mutual funds are certainly investments to bank on! So what say? Are you planning to go the MF way? ...Well, I certainly am!
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