Once there was a farm maid who collected the eggs in the morning and put them all in one basket. On her way back, she accidentally dropped the basket causing all the eggs to break.
Why? So that if you accidentally drop the basket, you don’t end up losing everything. This is the fundamental approach of Mutual Funds – diversification. A typical MF scheme invests in a wide range of financial instruments thereby spreading the eggs in different baskets. This helps you manage risks effectively since a couple of losses don’t set you back by a big margin.
Also, as an investor, you get to choose between high, medium and low risk schemes. Once you have determined your risk preference, you can look at MF schemes with similar risk exposure and invest accordingly.
Certain Mutual funds offer tax benefits under section 80C of the Income Tax Act. Investors must ensure that they research well to assess if the scheme falls under the category that is exempted from income tax. [ELSS funds are the most commonly used funds for tax saving purpose]
Invest without a corpus
Investments are usually associated with investors having a corpus of funds available. Mutual funds allows the flexibility of investing in lump sum (if you have the funds) or in instalments (systematic investment plan - SIP). An SIP allows youngsters and people without huge savings to start building wealth – one step at a time while lump sum investments helps seasoned investors benefit from a rising market.
To withdraw or not to withdraw
Are you someone who finds it difficult to save money and usually ends up spending all the saved up funds?
Yes? Then, you can opt for schemes with a lock in period (typically tax-saving schemes). By doing so you won’t be able to withdraw anything even if you want to. Just ensure that you have funds handy for exigencies.
On the other hand, if you are someone who needs funds regularly, then you can opt for a regular mutual fund with no restriction on withdrawals.
A fund for everyone
Over the years, the Mutual Fund industry has evolved and understands different investment needs of people. There is a plethora of funds available for investment. All you need to do is define your financial goals, understand your risk appetite and tenure and look for schemes that are a perfect fit. It will be safe to say that in today’s times there is a fund for each one of us – tailor made to suit our needs.
Professionals work to get you money
Imagine a fund manager with years of experience and knowledge about the way the market functions working hard to ensure that your money fetches you good returns. A pleasing thought, isn’t it? This is what a Mutual fund offers. With a team of dedicated and experienced professionals working round the clock to make the scheme a success, your funds are in good hands.
As kids most of us would remember playing the game – Simon says. The rules were simple – one kid would be Simon and whatever he said needed to be done by the other kids.
The Securities and Exchange Board of India (SEBI) is the Simon in the Mutual Fund industry. It regulates the functioning of all AMCs and MF trusts and ensures that both the investor and the fund house benefit.
Doesn’t cost much
A Mutual Fund collects money from hundreds / thousands of investors and the cost of the services provided is divided among them. This ensures that the cost of managing your assets is minimal and does not burn a hole in your pocket.
Probably after fixed deposits, Mutual funds are the most trusted investment options in India. The advantages offered by them outweigh the guaranteed returns on fixed deposits. With thousands of options to choose from and schemes designed to meet different financial goals, mutual funds are slowly but surely finding a place in every Indian’s portfolio. The only thing an investor needs to do is be sure about what he/she desires out of the investment and research well before investing. Did we mention – research well?
A mutual fund can do for you what you could do for yourself if you had sufficient
time, training and money to diversify with the temperament to stand back from your
money and make rational decisions.