Posted On Friday, Apr 12, 2013
Many of you may have heard the adage "make your money work for you." How do you do that? You work for money (among other things), ‘how can money work for me,’ you rightly wonder. It’s really simple – Invest your money right.
Many of us wonder: why to invest? Well, the reasons for investments are very clear and simple. Investing makes you prepare for your future and also helps you to have a secure life with adequate monetary support for your family. So, at the time of emergency, you always have a plan B which can take care of your financial liabilities.
Investing in Mutual funds can be one of the options where you can park your hard earned money and take a big stride forward towards planning for your future financial liabilities. Traditionally, when it comes for investments, we have seen that generally majority of us opt for gold, real estate etc. However, we don’t realize the limitations we face in these options. Physical gold purchases, bring with them purity concerns and safety issues and real estate investments needs a huge lump sum amount, has title issues and also poor liquidity. So to avoid these shortcomings and explore new avenues for investments you may invest your money in mutual funds. A mutual fund is a type of investment vehicle that pools money from many investors to purchase securities. It mobilizes moneys from investors, to invest in different markets and securities, in line with the investment objectives of the Mutual Fund Schemes.
To help you decide whether you can consider mutual funds as your investment option, lets look at some reasons why you might want to consider investing in mutual funds:
Diversification:Don’t put all your eggs in one basket – this is exactly what diversification in Mutual Fund does to your portfolio. Diversification involves holding a wide variety of investments in a portfolio so as to nullify risks. Portfolio of Mutual funds Schemes is usually spread investments across various industries and asset classes. If you invest most of your savings in a single security or a single type of security you are exposed to any risk that attaches to those investments. In order to reduce this risk, you need to invest in different types of securities such that they ‘move’ in different directions. Over past 10 yrs generally a trend has been observed that whenever equities have fallen, gold has risen, so it may make sense to invest in both so as to offset the loss caused by investing in one asset class. Thus, by investing in mutual funds, you can avail of the benefits of diversification and asset allocation.
Professional Management:This is another major advantage of investing in a Mutual Fund. When you opt in for a Mutual fund scheme, your money is thus taken cared by a skilled fund manager. Fund Managers are experienced and skilled professionals, who conduct investment research and analyze the performance and prospects of various instruments before selecting a particular investment. Thus, by investing in mutual funds, you can avail of the services of professional fund managers, which would otherwise be costly for an individual investor.
Divisibility:Many investors don't have the exact sum of money to buy round lots of securities but investors can purchase mutual fund units in smaller denominations. Smaller denominations of mutual funds provide mutual fund investors the ability to make periodic investments through monthly purchase through SIP. A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help investors save regularly. An SIP is a mode of investment whereby you, the investor, invests a pre-determined amount on a monthly basis, on a pre-determined date, into a particular mutual fund scheme. Today, it is the most common and conveniently chosen method of investing by retail investors.
Liquidity:Another advantage of mutual funds is its liquidity. It comes with add on facilities like Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP). The liquidity of a mutual fund unit determines how quickly you could sell your units of the mutual funds. Since they are very well integrated with the banking system, most mutual funds can send money directly to your banking account.
Well Regulated:Mutual funds in India are regulated and monitored by the Securities and Exchange Board of India (SEBI), which strives to protect the interests of investors. Mutual funds are required to provide investors with regular information about their investments, in addition to other disclosures like specific investments made by the scheme and the proportion of investment in each asset class.
Mutual funds also carry certain risks. These investment vehicles may experience market fluctuations. The investors should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. The investors should consult their financial adviser if they are not clear about the suitability of the mutual fund product while making investment decisions.
To finally sum it up, mutual funds offer investors a wide spectrum of investment products to suit their investment needs and allows diversification of risk with the help of a professional fund manager to take care of their hard earned money on a day to day basis.
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