Have you ever invested in a recurring deposit? Well, you should know Mutual funds aren’t much different. A mutual fund is an investment vehicle that allows you to invest in multiple tools – like Equities, Debt, and liquid assets, to name a few.
Okay, so to your next question – Do I manage Mutual funds on my own? No, you don’t. A fund manager manages your investment in these funds. Their job is simple enough – they distribute the money you’ve decided to invest in multiple fund options to give you – the investor – the maximum gain in wealth.
Do professional Mutual Fund managers handle only my investment? No. Funds managers pool money from different investors toward a fund – managed by them. According to the extent of their investment, sharing of the rewards, profits, risks, and losses is also proportional. So, how do you decide to separate your investment amount into different Mutual Fund options? Simple. You choose how much ‘risk’ you want to take with your investment. If you invest in highly volatile market options – you stand to make huge gains or huge losses. It is always advisable to mix risky investments with stable and safe ones.
If you get the basics of Mutual Funds now, you will want to ask who regulates all the Mutual Funds in India. The answer is The Securities Exchange Board of India (SEBI). You have to ensure any fund you pick follows SEBI’s guidelines before investment. Now that you know the basics of a Mutual Fund, let’s get to the big question on your mind: Is a Mutual Fund fit for me? It depends. Mutual funds are ideal for investors who either do not want to invest large sums, or don’t have the inclination nor the time to study the market, but still want their wealth to grow.
Features of Mutual Funds
Mutual Funds have certain unique features that make them the ideal form of investment. Some of the best features of these investment tools are below.
- Diversification: Minimize and spread risk across multiple investment options like equity and debt.
- Professional Management: Choose your risk profile and leave the investment in the hands of a fund manager, responsible for growing your wealth.
- Flexibility: Withdraw, Redeem, and Re-Invest at any point in time!
- Liquidity: Exit Mutual Funds immediately, hassle-free to get money back in your hands – unless there’s a lock-in period.
- Affordability: Invest sums as low as Rs. 500, through SIPs.
- Transparency: All of the information on fees is in the mutual fund prospectus, available on the company’s website.
- Tax exemption: ELSS, which is a specific class of funds, are exempt from taxation under section 80C of Income Tax Act 1961 for a limit of INR 1.5 lakhs.
Choice of Investment: Depending upon your financial goals, you can choose to invest in the appropriate category of mutual funds available mentioned below:
- Liquid Funds
- Short Term Funds
- ELSS Tax Saving Funds
- Long-Term Funds
What are the Benefits of Investing in a Mutual Fund?
In today’s day and age, investment options are necessary to ensure financial security for you and your family. Here are some advantages of Mutual funds.
- Easy to Understand: They are an ideal option for investors who may not know much about investing.
- Easy to Buy: Thanks to online technology today, buying, managing, and selling funds has become a hassle-free convenient task for investors. Through online mode, you can also manage your investment by getting updates on your fund’s performance daily.
- Different Categories: Asset management companies offer various mutual funds to meet investors’ diverse risk appetites.
- Low Expense: Mutual funds have money from many investors clubbed together in one fund. This way, the asset management cost gets divided amongst all the investors, and there is no burden felt by the investors for the asset management cost.
- Risk diversification: Investing in these funds allows you to choose between risky assets and non-risky ones. Make sure you invest in a balanced portfolio.