Is it really true? Should one invest in Mutual funds? Why should one invest in MFs?
I say why not?
I’ll assume that you are an investor who has a little or no idea where to invest and maximize your money. Investing can be a very complicated and mind-boggling task. After all, there are so many options out there like real estate, gold, or silver (commodities), stocks, fixed deposits, and the list could go on and on. You may choose one of them but what is the guarantee that you will make money or even if you make something out of it there would be a high chance that you could have made more. There’s an opportunity cost for everything, right?
So here comes the savior, Mutual Funds.
To start with, these funds are managed by expert and highly qualified professional fund managers. This is not the only reason why you should believe in these ‘fund managers’ to handle your hard-earned money. Also, these fund managers have pooled money from a lot of investors like you and it amounts to several hundred or thousands of crores and this money is not invested in a single asset. It is diversified into a number of assets ranging from different stocks to bonds to commodities.
The way this diversification works is that the stocks or bonds in which the money is invested are from different types of industries, say stocks of an automobile manufacturer and an IT company. These industries do not have a direct connection. So even if one is affected, the other stock saves the day. This way unsystematic risk is removed. Unsystematic risk is a risk associated with an industry or company in particular.
Though it not as simple as that, this pooled money is invested into a very well-diversified portfolio of 25-30 stocks, which could also include bonds, CPs, CDs, and a lot more securities.
Based on your risk perception mutual funds are of various types (equity, debt, hybrid, tax saver, etc). If you are a high-risk taker, you can invest more proportion of your money in equity-related funds. If you are more interested in having a regular income with capital preservation, you can opt for debt-related mutual funds. Or there are the hybrid funds that give a mix of both. Of course, these MFs come at a certain nominal risk. But you can trust the expert and licensed fund managers who are well qualified and bound by the laws and compliances to protect and maximize your wealth. Here’s a quick infographic highlighting the benefits of investing in MFs.
You can invest according to your comfort in small amounts, starting from Rs 500 or lump sum. Also, systematic monthly investment plans or systematic withdrawal plans can be availed. So you can make the optimum use of the cash in hand and maximize the returns. Moreover, these funds give you instant liquidity (you can cash them in, at most by 2 days or less) than FDs or other financial instruments would not have. MFs are standardized instruments that are overseen by the regulatory bodies like SEBI (Securities and Exchange Board of India) and can be bought and sold in the market instantly.
Be it equity, debt, or hybrid these funds have provided returns up to 15-25% per year and are consistent enough to beat the inflation (typically 3-7%) and the meager interest rate provided by the savings account or the fixed deposits. Thus we can firmly say now MUTUAL FUNDS SAHI HAI!! Right?